Industrial S-Reits to be acquisitive in 2016: Moody's

MOODY'S Investors Service expects Singapore real estate investment trusts (S-Reits) in the industrial space to maintain their appetite for overseas acquisitions this year as they pursue asset growth, yield accretion and portfolio diversification amid challenging business conditions.

While industrial occupancy and rents in Singapore remain under pressure as new supply outpaces demand growth, overseas acquisitions will provide the higher yields for these industrial Reits, while growing their geographical reach and income diversification, the credit agency says.

Moody's analyst Rachel Chua noted that the move towards lower asset concentration in Singapore is credit positive for S-Reits given slowing domestic business conditions.

Domestic yields have fallen in the last few years, a trend that will likely continue in 2016-2017. Specifically, rental yields for warehouses in Singapore declined to 2.5 per cent in the third quarter of 2015 from 3.2 per cent in early 2010, according to CBRE data, while net property income yields of S-Reits' recent overseas acquisitions have ranged between 5 per cent and 10 per cent.

Three of the four industrial S-Reits rated by Moody's - Ascendas Reit, Cache Logistics Trust, and Mapletree Logistics Trust - have announced acquisitions in Australia in the past 12 months.

Moody's said it expects the industrial S-Reits to continue to gravitate towards Australia in their acquisitions, given the country's stable and well-regulated real estate market. Industrial supply in Australia will also be underpinned by continued demand for logistic and distribution centre space in 2016.