Perps grow in popularity as acquisitions rise in Industrial REITS

YTD aggregate acquisition  now hits S$606.9m v the S$556.4m in 4Q11 to be financed mostly through combination of debt and equity.

Following Ascendas REIT’s proposed acquisition of three properties at Science Park Drive in Feb 2012, two other industrial REITs, namely Mapletree Logistics Trust (MLT) and Cambridge Industrial Trust, have also announced their respective acquisitions.

According to OCBC analyst Kevin Tan all the acquisitions are expected to be DPU-accretive.
In the months ahead, Mr Tan notes that the acquisition trend will continue, given the still-sound market fundamentals which may potentially lift their aggregate leverage levels higher. However, industrial REITs’ financial positions, he says, are still strong in having taken a proactive approach in their capital management strategy.

“Mapletree Industrial Trust (MINT), for instance, had successfully refinanced part of its S$209.2m borrowings due in Sep 2012 via the issuance of S$125m 7-year fixed-rate notes recently, thereby extending its average debtduration from 2.5 years to 3.2 years,” says Mr Tan.

The analyst adds that there is also a recent trend of financing acquisition via a combination of debt and equity, especially when a REIT’s debt-to-asset level approaches the 40% mark and when the acquisition is sizable.

Noteworthy, he says, was MLT’s recent issuance of perpetual securities, which followed suit on successful launches by several corporations such as Genting Singapore and Global Logistics Properties.

“Such hybrid securities will not only provide REITs with the firepower for future investments but also have the effect of lowering their aggregate leverages,” says Mr Tan.

“The only concern, we believe, is the successful deployment of the net proceeds on yield-accretive acquisitions. We expect growing popularity in perpetual securities in the industrial REIT space, as REITs seek alternative funding sources apart from a direct rights issue.