The Singapore-listed real-estate investment trusts (S-REITs) in the industrial space are due to be among the first to announce their 2Q09 results, from 17 July.

We expect minor (0.6-2.6%) quarter-on-quarter declines in net-property income (NPI) arising from a slight uptrend in overall vacancy rates and a more challenging leasing environment (for renewals).

We expect year-on-year declines in their distribution-per-unit (DPU) due to equity fundraising for Ascendas REIT (AREIT) and Mapletree Logistics Trust (MLT), and higher borrowing costs for Cambridge Industrial Trust (Cambridge).

We believe the implied trading yields (implied cap rates) of 8.1% for MLT and 10.9% for Cambridge (based on our estimates) are attractive relative to the cap rate of 7% for Singapore industrial properties. From this perspective, AREIT is unattractive, at an implied trading yield (based on our estimates) of about 6.6%.

We maintain our Negative rating for the industrial segment, and our 4 (Underperform) rating for AREIT, which we believe continues to trade at an excessive premium (at a price to NAV of 0.94x) to the sector and its industrial peers.

We believe the biggest risk to this segment is the relentless decline in asset values, down 7-11.3% QoQ for 2Q09 and in line with similar quarter-on-quarter falls for industrial rents, according to Jones Lang LaSalle.

We maintain our 3 (Hold) rating for MLT as we believe it offers reasonable value, but little else now that its acquisition-growth model has stalled.

Our top pick in this segment is Cambridge, 1 (Buy) rating, for its attractive valuations and, in our opinion, highly defensive lease-renewal profile. We believe a positive price trigger for Cambridge would be a well-timed asset disposal that would help reduce gearing.