Month: July 2012
A-REIT – DBSV
Strong start from the leader
• 1Q13 earnings ahead of expectations
• Business Parks segment remains stable and portfolio demonstrates operational resilience
• Financial flexibility to undertake capex; developments/AEIs to underpin steady income growth
• Maintain HOLD; TP raised slightly to S$2.23
Highlights
1Q13 results slightly ahead of our expectations. Ascendas REIT (A-REIT) reported an 18% and 14% y-o-y growth in topline and net property income to S$142m and S$101.1m respectively. The strong performance was largely attributable to an expanded portfolio (102 properties as at end 1Q13 vs 93 properties a year ago) upon completion of its acquisitions and development projects, while underlying organic growth remained positive. Distributable income came in at S$76.5m (+16%), translating to a DPU of 3.53 Scts (+10%). 1Q13 results forms 26% of our full year FY13F.
Our View
Portfolio demonstrates operational resilience, Business Parks segment outperforms. Operationally, average occupancy levels continue to remain stable at 96.4% (flat compared to a quarter ago) while rental reversions remained high at 11.6% compared to previously contracted rates. An outperformer in our view is its Business Parks segment, which saw average positive reversions of close to 11%. Looking ahead, we expect renewal activities to remain fairly stable, cushioned by expiring rental rates being 16-35% below current market levels in the coming 2 financial years. Our earnings estimates are raised by c2.5-3.5% as we tweak our occupancy and rental renewal assumptions going forward.
Financial flexibility to undertake capex; developments/AEIs to underpin steady income growth. Gearing remained at 32.7% as of 30th June12 but should head up to c. 36% (S$227.8m yet to be funded) after taking into account its committed investments. These various developments and asset enhancement activities should complete progressively over 2HFY13-FY14, underpinning incremental earnings growth in the coming quarters.
Recommendation
HOLD, TP raised to S$2.23 based on DCF. A-REIT currently trades at 1.15x P/BV, offering FY13-14F yields of 6.3%-6.4%, which we believe is fair. Our HOLD call is maintained given limited price upside to our revised target objective.
K-REIT – DBSV
Resilient earnings
• Results in line; 6M DPU is 52% of our FY12 forecast
• Stable rents backed by improving occupancy rates
• Proactive refinancing efforts will mitigate gearing risk
• Maintain BUY; TP is adjusted to S$1.23
Highlights
Results in line. K-REIT’s NPI and gross revenues more than doubled to S$31.3m and S$39.3m, respectively, led by its 88% stake in Ocean Financial Centre (OFC) and improving occupancy rates at all properties. Meanwhile, the income vacuum left by the expiry of One Raffles Quay’s (ORQ) was partly mitigated by the GST rebates and positive rental reversions. Distributable income was S$49.8m or 1.94cts DPU (+86.5% y-o-y, +2.1% q-o-q).
Our View
Improved occupancy, stable rents. Although the Eurozone crisis has created uncertainties in the global economic climate, KREIT’s portfolio continued to demonstrate resilience by outperforming the general office market. Occupancy is now 97% with improvement at all its properties, while leases that were renewed in the quarter saw positive rental reversions. Meanwhile, OFC signing rents continued to hold up at S$11-13 psf supported by higher occupancy of 93% vs 91% a quarter ago. In Sydney, Apple has taken up additional space at 77 King Street, lifting occupancy by 5 ppt to 93% On track to renew S$598m loan. Gearing has risen to 43.9% following the acquisition of 12.4% stake in OFC, but the trust is on track to refinance its S$598m loan due at the end of the year with a 5-year term loan. This should mitigate refinancing risk and extend its debt expiry profile from 2.5 years to 3.6 years.
Recommendation
Maintain BUY; nudged up DCK-backed TP to S$1.23. The longweighted lease expiry of 6.2 years with 48.2% of its portfolio NLA tied to long leases (> 5 years) will help to mitigate leasing risk. Meanwhile, 2H earnings will continue to improve led by rising portfolio occupancy, the additional stake in OFC, and the tax savings from MBFC Phase 1 which was obtained recently. We raised FY12/13 DPU forecast by 1-3% and TP by 1.6% to account for better-than-expected portfolio occupancy. The stock now offers close to 20% total return.
A-REIT – OCBC
Positive start to FY13
• Strong 1QFY13 numbers as expected
• Healthy demand for industrial space
• Expecting another year of robust growth
Commendable set of 1QFY13 results
Ascendas REIT (A-REIT) turned in a commendable set of 1QFY13 results after market close yesterday. NPI came in at S$101.1m, up 13.9% YoY, while distributable income grew by 16.4% to S$75.5m. Expectedly, the strong performance was achieved mainly due to the completion of development projects and acquisitions made during the past year. While the number of units in issue rose by 7.3% QoQ following the private placement of 150m new units in May, DPU for the quarter increased by 10.3% YoY to 3.53 S cents. The results were in line with our expectations, with headline numbers forming 25.5% of our FY13 forecasts.
Operating metrics remained positive
A-REIT’s portfolio assets have remained strong despite the uncertainties in the global economy. Both the occupancy rates for the multi-tenanted buildings and overall portfolio improved to 90.1% and 94.6% respectively from 89.5% and 94.3% in 4QFY12. During the quarter, we note that A-REIT signed new leases (including expansions) amounting to 46,314 sqm NLA (+16.7% YoY), reflecting continued demand for industrial space. Notably, A-REIT continued to register positive rental reversions ranging from 10-21% throughout its asset types.
Retain BUY rating on A-REIT
For the rest of FY13, A-REIT has 9.1% of its revenue due for renewal. Given that the current market rents are 16-35% higher than the average passing rents for the area due for renewal, we remain positive that A-REIT may continue to benefit from favourable rental reversions in the coming quarters. In our view, A-REIT looks set to deliver another year of robust growth, supported by full-year contribution from its recent investments.
We also note that the REIT will be undertaking a new S$6.0m asset enhancement project at Xilin Districentre, which will see its auxiliary office into warehouse space by 3QCY13. Maintain BUY with a higher fair value of S$2.27 (S$2.22 previously) after tweaking our rental rate assumptions and completion dates for various projects in FY14 (FY13 forecasts unchanged).
A-REIT – Kim Eng
A-REIT delivers again
1QFY12 results inline. 1Q12 revenue at SGD142m, was 28% of ours and 26% of consensus estimate. 1Q12 DPU at 3.53 SG-cts (up 0.9% QoQ and 10.3% YoY) was 26% of our forecast and consensus estimate. Aggregate leverage inched down to 32.7% from 36.6% last quarter. After funding of committed capital expenditure, aggregate leverage is expected to be ~35%. All-in-financing costs for 1Q12 averaged 3.17%
with an average term of debt of 4.4 years.
Stable portfolio continues to deliver. Occupancy rate for the portfolio and multi-tenanted buildings (MTB) improved to 94.6% and 90.1% respectively from 94.3% and 89.5% a quarter ago. 1Q12 weighted average lease to expiry was 4 years, with 10.5% NLA (127,543 sqm) renewed and signed for A-REIT’s MTB. Positive rental reversion on renewal range between 10%-21% throughout all segments of the portfolio. NPI margin improved from 70.8% last quarter to 71.2%.
Adjustments to our estimates. We raise our FY12-14F revenue and DPU by 1.1%-3.6% and 1.2%-4.8% respectively in view of better-than expected rental reversions from renewals. The stock has risen 8.5% since our last report.
Maintain BUY. We continue to like A-REIT for its stable DPU yield, healthy lease expiry and debt maturity profile, underpinned by a diverse portfolio (business/science parks, hi-tech industrials, flatted factories, light industrials, logistics and distribution centres and warehouse retail). In addition, only 20.2% of A-REIT’s NLA is used for conventional manufacturing, which is a plus given that the per annum net demand for factory space has been modest compared to warehouses and business parks. Based on our forecasts, business/science parks currently constitute 40% of our FY12F GAV, followed by hi-tech (23%), logistics and distribution (19%), light industrial (15%) and warehouse retail facilities (3%). Potential acquisitions overseas could provide further upside for DPU growth. Importantly, A-REIT is also less vulnerable to asset erosion, with its defensive properties located primarily in Singapore. The stock currently trades at 6.4% FY12F yield and 1.1x P/BV. Reiterate BUY with a DDM-derived target price of SGD2.34 (prev. SGD2.23), boosted by DPU uplift.
K-REIT – CIMB
And the leasing continues
K-REIT’s portfolio remains hardy with continued lease take-ups at some key assets. Management also highlighted that it is not looking at an acquisition of MBFC Tower for now, allaying fears of near-term equity fund raising. We think yields of 7% remain compelling for now.
2Q12/1H12 DPUs were in line with our estimates at 26/51% of our full-year numbers, but slightly above consensus. We raise our DPUs and DDM target price (disc. rate: 8.2%) on adjustments to interest costs and rental support. Maintain Outperform on favourable risk-reward.
Tick-up in occupancy 2Q12 distributable profit was up 90% yoy, due to acquisitions. Qoq, DPU benefitted from a partial quarter of tax savings from MBFC Phase 1 and additional stake in OFC. Key positives came from the continued leasing – albeit for smaller spaces. Portfolio occupancy ticked up to 97.0% from 96.1%, mainly from higher occupancy at improved occupancy at OFC, Prudential, MBFC 1 and 77 King St in Australia.
And the leasing continues
Leasing interest in the quarter was dominated by new-to-market legal firms. Management noted largely positive rental reversions for its renewals/reviews. There have been some enquiries for small spaces at OFC, but management is holding out for tenants willing to take up at least half a floor. Rents are still at ‘low-teens’ for its super Grade A properties and S$9+psf for smaller spaces at Prudential, with management noting that it had not offered more incentives for tenants. Management has not seen more formal requests for subletting at its super Grade A properties.
Not looking at MBFC Phase 2 for now
Management noted that it has not started reviewing a potential acquisition of MBFC Phase 2 and that it will monitor occupancy. This should allay fears of a sizeable equity fund-raising, given current asset leverage of 43.9%. We think that the high current yields of about 7% should limit accretion and inhibit an acquisition for now.