AIMS AMP industrial Reit and ESR Reit have both released their results this week, and I am beginning to feel like I have swung a little too early, as the recovery for the industrial Reit sector is unlikely to materialize before the start of 2019.
AIMS has completed its BTS at 30 Marsiling, with committed leasing for 10 years. It has also completed the redevelopment of 30 Tuas West. The manager is now also embarking on a new redevelopment of its Tuas Ave 3 property into a ramp up warehouse. The property is located near Tuas Cresent MRT and the redevelopment would increase existing the plot ratio to 1.4.
ESR has competed its own AEI of 120 Pioneer, which is near the Tuas West MRT. The manager has since embarked on a new AEI to upgrade 30 Marsiling into a High-Spec building, with committed lease for 5 years. The Manager also proposed to purchase 13 Greenwich drive, which is located in the Eastern part of Singapore. The property comes with 2 existing tenants, and it remains to be seen if the manager can improve the yields on this property considering that they are paying a premium valuation for it.
Yield & income
Gross revenue has fallen for both Reits, which is understandable considering that they have been facing considerable negative rental reversions for the last few years. While AIMS has done admirably in maintaining its DPU even after its preferential offering. ESR on the other hand has seen its DPU fall by 15%.
I think investors looking at Industrial Reits have mostly gone with the larger named players due to their better located properties and diversified investment mandates (data centers, integrated biz parks etc..). This has lifted their prices and most are trading above NAV.
Currently, industrial plots in semi-urban areas command a steep rental premium over those in D22. With that much oversupply in Tuas, its no wonder how AIMS only managed to lease out 85% of 30 Tuas West, despite it having recently undergone redevelopment and being next to the MRT.
As both Reits are heavily laden with properties in Tuas, they have definitely borne the brunt of the last 4 years of overwhelming industrial supply. Despite the weak demand in D22, I still believe that these Reits are well managed and by being at the end of their single tenanted leases, this puts them in a good position to ride on the potential uplift in rates.