Over the past two months, we note that industrial REITs have continued to be active in driving their inorganic growth strategy.

Most recently, Mapletree Logistics Trust (MLT) announced last Friday that it had entered into a Sale and Purchase Agreement with a third party vendor to acquire the remaining 38% strata share value of Shatin No. 3 in Hong Kong for a purchase consideration of HK$610.0m (~S$103.7m).

Although this property was acquired with vacant possession (except for one floor which will be leased back to the vendor), MLT will be spending capex of ~HK$30m on AEI to enhance the attractiveness of the asset.

Ascendas REIT announced in late Dec last year that it had completed the acquisition of a suburban office in Brisbane Australia for A$106.2m (S$109.0m). This translates into an initial NPI yield of 6.5% (pre-transaction costs), or 6.1% post-transaction costs.

Not all acquisitions by industrial REITs were done overseas, as ESR REIT said on 14 Dec 2017 that it had acquired an 80% stake in a SPV which owns the leasehold interest in a highspecifications building (7000 Ang Mo Kio Avenue 5) for S$240.0m.

We remain NEUTRAL on the broader S-REITs sector. Our preferred pick within the industrial REIT subsector is Frasers Logistics & Industrial Trust [BUY; FV: S$1.25].

We see room for more DPU accretive acquisitions this year given its healthy gearing ratio and strong pipeline of potential acquisition targets from its sponsor.

Source: OCBC Research - 10 Jan 2018