Review of 3 Industrial Real Estate Investment Trusts

Industrial Real Estate Investment Trusts (“REITs”) are established with the investment strategy to own and manage real estate properties that are used for manufacturing, production, storage, and distribution of goods.

Some of the industrial properties comprise of High-Specs Industrial Logistics, Warehouse & Logistics and General Industrial.

These industrial properties mentioned above may exist as a cluster of industrial buildings within an industrial park or as a standalone building that is leased to an individual or multiple tenants.

Hence, here are 3 such Industrial REITs that are listed on SGX:

• ESR-REIT (SGX: J91U)

• Sabana Shari'ah Compliant REIT (SGX: M1GU)

• ARA LOGOS Logistics Trust (SGX: K2LU)

1) ESR-REIT (SGX: J91U)

ESR-REIT has been listed on the Singapore Exchange since 25th July 2006. ESR-REIT invests in quality income-producing industrial properties and as at 31 December 2020 holds interest in a diversified portfolio of 57 properties located across Singapore, with a total gross floor area of approximately 15.1 million square feet and an aggregate property value of S$3.1 billion.

The properties are in the following business sectors: Business Park, High-Specs Industrial, Logistics/Warehouse and General Industrial, and are located close to major transportation hubs and key industrial zones island-wide.

ESR-REIT’s Portfolio

1Q FY2021 Business Update

For 1Q FY2021, ESR-REIT's total gross revenue came in at S$60.3 million, which represent a year-on-year increase of 4.4%. The growth can be attributed to the absence of provision for COVID-19 rental rebates to tenants and lower property expenses.

With a higher net property income and lower borrowing costs, the total amount available for distribution to unitholder grew by 17.1% year-on-year to S$28.7 million. This translates into a core distribution per unit of 0.8 cents, which is a growth of 14.8% year-on-year.

Portfolio Performance

For 1Q FY2021, ESR-REIT's overall portfolio occupancy rate came in at 90.8%, which is higher than the average figure for JTC. Meanwhile, the REIT has managed to achieve a tenant retention rate of 87.0%. However, it suffered a negative rental reversion rate of 5%, which signals potential lower rental income in the near term.

Meanwhile, the biggest contribution in rental income came from General Industries (32.5%), followed by Business Park (28.1%), Logistic/Warehouse (23.3%) and High-Specs Industrial (16.1%).

In general, ESR-REIT mentioned that there is an increase in leasing interest from sectors such as technology, media, e-commerce and pharmaceuticals.

It has managed to secure a couple of major leases in this quarter including:

• A manufacturing company (52,000 square feet) at 8 Tuas South Lane.

• United Test and Assembly Center Ltd (80,000 square feet) at 12 Ang Mo Kio Street 65.

• Happy Fish Swim School (10,000 square feet) at ESR BizPark at Chai Chee.

Latest Development - Acquisition of 46A Tanjong Penjuru & Acquisition of a 10.0% interest in ESR Australia Logistics Partnership

In the press release dated 6th May 2021, ESR-REIT announced the acquisition of 46A Tanjong Penjuru, a modern ramp-up logistics facility, for a purchase price of approximately S$119.6 million. Also, ESR-REIT will acquire 10% of the total issued units in ESR Australia Logistics Partnership, for a purchase consideration of A$60.5 million (S$62.4 million)

Mr. Adrian Chui, Chief Executive Officer of ESR-REIT commented,

“Both the Singapore and Australia Acquisitions complement our investment strategy of focusing primarily on higher value business segments to meet the needs of industrialists. The Singapore Acquisition will enhance our ability to tap into the rising demand for quality logistics facilities. Likewise, the Australia Acquisition marks the first step for ESR-REIT’s overseas diversification across key regional markets. The Australia Acquisition will strengthen ESR-REIT’s portfolio geographically, provide us with access to freehold assets and broaden our exposure in the logistics segment.”

2) Sabana Shari'ah Compliant REIT (SGX: M1GU)

Listed on Singapore Exchange since 26 November 2010, Sabana Shari'ah Compliant Industrial Real Estate Investment Trust ("Sabana REIT") was established principally to invest in income-producing real estate used for industrial purposes, as well as real estate-related assets, in line with Shari’ah investment principles.

Sabana REIT has a diversified portfolio of 18 properties in Singapore, in the high-tech industrial, warehouse and logistics, chemical warehouse and logistics, as well as general industrial sectors. The total assets of the Group amount to approximately $0.9 billion as at 31 December 2020.

Sabana REIT’s Portfolio

1Q FY2021 Business Update

For 1Q FY2021, Sabana REIT’s overall portfolio occupancy rate was at 79.0%. By excluding the property at 1 Tuas Avenue 4, which is held for divestment, the occupancy rate would have been 81.9%.

In terms of the REIT’s leases, Sabana REIT has managed to sign 400,862 square feet of new leases, which is equivalent to 74.0% of last year’s total new leases signed. Meanwhile, the REIT has renewed 66,233 square feet of leases, with a positive rental reversion of 3.1%.

This shows that the REIT is able to increase the rental rate for the renewed leases and this could help in the improvement of the REIT’s bottom line.

Capital Management

As at 31 March 2021, Sabana REIT’s total borrowings stood at S$305.9 million, which translates into aggregate leverage of 35.9%. The average all-in financing costs for the borrowing was at 3.4% and the weighted average tenor of borrowing came in at 2.2 years.

In terms of the debt maturity profile, Sabana REIT has a S$30 million term loan that is due for refinancing in FY2021. Sabana REIT has kick-started the negotiations with lender on the term loan mentioned above.

The next major refinancing hurdle will be in FY2022, where a S$110.9 million term loan and S$7.0 million worth of revolving facilities will be due for refinancing.

Latest Development – NTP+ achieved Temporary Occupation Permit (“TOP”)

In the press release dated 10 March 2021, Sabana REIT has announced that NTP+ has received its TOP. NTP+ is a two-storey lifestyle mall located at New Tech Park which spans approximately 43,000 square feet of gross floor area, comprising 25 retail and food and beverage (“F&B”) units on the ground floor, and a food court on the second level.

Currently, the REIT has secured a high 96.7% occupancy rate for NTP with the rental contribution from NTP+ is expected to start from 2Q 2021.

Donald Han, Chief Executive Officer of Sabana REIT is upbeat about this latest development and said:

“We are pleased to have reached this milestone for NTP+. The AEI at NTP underscores our focus to rejuvenate and sharpen our portfolio offerings as part of our Refreshed Strategy, by providing a vibrant ‘Work, Learn and Entertainment’ environment for our tenants and the surrounding community. For the REIT, the opening of NTP+ will strengthen NTP’s reputation as a preferred business park address.”

3) ARA LOGOS Logistics Trust (SGX: K2LU)

Listed on Singapore Exchange on 12th April 2010, ARA LOGOS Logistics Trust (“ALOG”) is a real estate investment trust (“REIT”) that invests in quality income-producing industrial real estate used for logistics purposes, as well as real estate-related assets in the Asia Pacific.

ALOG is managed by ARA LOGOS Logistics Trust Management Limited. As at 31 March 2021, ALOG’s portfolio comprises 27 high quality logistics warehouse properties strategically located in established logistics clusters in Singapore and Australia. The portfolio has a total gross floor area of approximately 9.0 million square feet valued at approximately S$1.28 billion.

ALOG’s Portfolio

1Q FY2021 Business Update

For 1Q FY2021, ALOG’s gross revenue and net property income saw a year-on-year growth of 8.2% and 8.7% respectively. The robust performance was mainly due to commencement of new leases at several properties as well as higher revenue generated from the Australia portfolio on the back of the strengthening Australia dollar.

On the other hand, distributable income was 59.3% higher year-on-year to S$17.3 million. The surge in distributable income was mainly due to the payout of retained distributable income in 1Q FY2020 as a result of COVID-19.

Meanwhile, ALOG’s distribution per unit grew by 6.6% year-on-year to 1.307 cents. The single digit increase in DPU was mainly affected by the enlarged unit base due to a Preferential Offering Units issued on 25 January 2021.

Capital Management

ALOG’s total debt stands at S$522.1 million and this translates into an aggregate leverage ratio of 37.4%. The leverage ratio is still within the stipulated limit of 50% and the debt headroom could allow ALOG to conduct more acquisitions.

The all-in financing cost for ALOG is at 3.09% and its interest coverage ratio was at 4.3 times. This shows that ALOG has sufficient resources on hand to meet its interest expenses.

In terms of debt maturity profile, ALOG’s S$53 million loan will be due for refinancing for FY2021. This constitutes 10% of the total debt load.

The next major refinancing hurdle will be in FY2023 and FY2024, with a S$110 million and SS$213 million loan that are due for refinancing. The debts mentioned above represent 62% of the total debt load for ALOG.

Latest Development – Divestment of Kidman Park Property in Australia

In the press release dated 26 April 2021, ALOG has entered into a sale and purchase agreement with 1835 Capital Pty Ltd for the sale of 404-450 Findon Road, Kidman Park, South Australia, Australia at a proposed sale consideration of A$41.5 million (S$42.6 million).

The proposed sale consideration is approximately 3.8% above the A$40.0 million (S$40.7 million) valuation conducted by CBRE Valuations Pty Limited as at 31 December 2020.

Ms Karen Lee, Chief Executive Officer of the Manager, commented:

“This Proposed Divestment is in line with ALOG’s strategy to proactively rebalance the portfolio to optimise returns for our Unitholders. With this sale, it will provide us with the financial flexibility to recycle capital and invest in other value-adding properties.

We may also utilise the proceeds to pare down debt which will improve ALOG’s debt headroom for potential acquisitions of quality assets or strategic opportunities to unlock further value for the existing portfolio.”

Conclusion

To summarize, the 3 industrial REITs mentioned above has delivered a set of resilience results for the latest quarter.

On top of that, their overall financial health also indicates that they have adequate resources for more accretive acquisitions in the long run. However, with the ongoing pandemic, investors have to be cautious in terms of their short-term outlook.

To hear more first-hand updates from these 3 REITs mentioned above, join us at REITs Symposium 2021 on 15 and 22 May.

During this year’s online edition, not only will you get to hear from the REITs’ management but also get to speak with them during the Live Chat sessions and post your questions. Register for free now at: https://rebrand.ly/4475d3