Industrial S-REITs to keep hunting for overseas acquisitions in 2016: Moody’s

Diversified income contributions will cushion weak local performance.

Singapore REITS (S-REITS) in the industrial space will continue to prowl for overseas acquisitions in 2016, according to a report by Moody’s. Amid the challenging domestic business landscape, asset growth, yield accretion and portfolio diversification are on the top of S-REITs’ priority lists.

Industrial occupancy and rental rates in the country will remain under pressure as new supply outpaces demand growth. Meanwhile, industrial buyers will likely adopt a cost-sensitive and cautious attitude.

S-REITs are also spurred on their overseas hunt by the need to counter slipping domestic yields over the past few years, which is unlikely to see recovery in 2016 to 2017. 

Moody’s noted that rental yields for local warehouses saw a 2.5% pullback in 3Q15 from 2010’s 3.2%. In contrast, the net property income yields of S-REITs’ recent acquisitions have ranged between 5% to 10%.

REITs with foreign assets have so far benefited from expanded portfolios and diversified income contributions as these help cushion flagging local performance. 

Case in point—Ascendas REIT, Mapletree Logistics Trust, and Cache Logistics Trust all made meaningful maiden investments in Australia in 2015. In total, the three industrial S-REITs announced overseas acquisitions of $1.6b in the past 12 months.

More industrial players are already eyeing the same strategy, as Cambridge Industrial Trust and Viva Industrial Trust have indicated an interest to venture abroad.