Industrial Reits

[nitro]

http://www.businesstimes.com.sg/premium/...rial-space

SINGAPORE] A sudden rush for industrial properties and the high value investors are placing on them have alarmed some market players. They wonder if these investors know what they are getting into.

Experts warn that the returns from rentals expected by these investors - many of whom are new to the industrial property market - may not pan out. There is also a huge supply of factory and warehouse space in the pipeline. This may lead to a shortage of tenants and hit rentals in a few years' time.

Rental yields have already come down, as industrial property prices have moved up more than rents, said Chua Chor Hoon, DTZ's head of Asia-Pacific research.

The industrial price index rose 26 per cent in the first quarter from a year ago, outpacing the 10.6 per cent increase in the rental index over the same period.

--------------------------------------------------------

Any impact on Industrial Reits? Understand all the Industrial Reits have the tenants locked in for a few years in contracts.

[dzwm87]

Probably have to take note which industrial REIT has their rental renewed the earliest.

[piggo]

Guess valuation will go up, LTV becomes lower, they can loan even more money, buy more properties and give dizzying DPUs? Haha

[MattAtelier]

Nice article.

In short, the article describes a 'sellers market' where prices are high and demand is strong, albeit warns that this at some point could change. The issue to the listed REITs is two-fold. First, many of these REITs raison d'etre seems to be "NAV-enhancing M&A" which in a market like this is very tough. A great REIT manager would either sell its overpriced properties and wait for a better entry or, equally acceptable in my view, neither buy nor sell properties -- just delever and send cash out in form of dividends.

If you are thinking about a new position in REITs, my advice is make sure you stress test your NAV assumption as well as your div yield assumptions to make sure you have a sustainable yield and a deep discount to NAV.

Matt