Brokers' take

Compiled by Annabeth Leow

SINGAPORE INDUSTRIAL REITS | NEUTRAL

OCBC Investment Research, Feb 12

For at least the next few days, we expect much of the price movements within the space to be dictated by market momentum. Nonetheless, we have two key tactical ideas to strengthen the portfolio for clients with exposure to the space.

First, operationally, we remain generally more positive on the large-cap industrial Reits over the small-cap ones, given that the former tends to have well-diversified portfolios that can withstand the challenging industry outlook locally.

Nonetheless, we do note that many of these Reits are currently trading at tighter yields and would be more sensitive to an unexpected increase in the pace of rate hikes.

In this vein, we like Frasers Logistics & Industrial Trust. Operationally, we like the Reit for its 100 per cent exposure to the Australian economy, minimal near-term leasing risks, and embedded rental step-ups.

Second, for small-to mid-cap Reits, we recommend switching holdings from Cache Logistics Trust to Viva Industrial Trust, given their Feb 9 closing prices.

While we have "hold" ratings on both of them as at Jan 11, the recent market weakness has opened up a clearer differential in terms of their relative value.

Recall that Viva Industrial Trust is discussing a potential merger with ESR-Reit by way of an acquisition of Viva's units by share-swop. More details are still needed on the share swop ratio, but we see the opportunity to be part of a mega-portfolio as a positive.

The merged portfolio would be more resistant to factors such as the fall-off in UE BizHub's income support, and offers the merged entity a potential to trade at higher valuations.

Given that S-Reits valuations remain stretched despite the pull-back, we encourage investors to remain selective in their holdings.

SINGAPORE INDUSTRIAL REITS | EQUAL WEIGHT

PhillipCapital, Feb 12

We maintain our "equal weight" view on the industrial sub-sector.

The tailwinds for the sector are the tapering of supply of industrial space in 2018. In line with the robust industrial activity, 4Q 2017 Rental Index occupancy was higher quarter on quarter, albeit driven by the warehouse segment only, and the business park segment to a lesser extent.

The uncertainty is the exact bottom for rents, but we believe it to be by end-2018. Negative reversions are also likely to persist in 2018, in view of the higher Rental Index from three years ago.

We would like to see a broad-based improvement in occupancy, in order to upgrade our sector view for industrial Reits.

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