A-REIT – CIMB

As steady as it gets

AREIT’s 4QFY3/14 revenue rose by 7.7% and DPU by 16.0% yoy. FY14 DPU was in line at 101% of our FY14 forecast. As the industrial market in Singapore remains challenging on the back of relatively high supply, we maintain our Hold rating with an unchanged DDM-based (discount rate: 7.7%) target price of S$2.36.

Strong portfolio…

Ascendas REIT (AREIT) reported 4QFY14 revenue of S$156.5m (+7.7% yoy) and DPU of 3.55 Scts (+16.0% yoy). The strong growth was mainly attributed to the new income contribution from The Galen, Nexus@One-North, A-REIT City@Jinqiao and Four Acres Singapore. Together, these new assets account for c.70% of the total growth, while other factors such as positive rental reversions due to renewals also contributed to the strong growth. AREIT’s portfolio occupancy held steady at 89.6% in 4QFY14, lower than the 94.0% in 4QFY13 due to the addition of c.114,500 sq m of NLA from its new properties. The cap rates for the period compressed slightly to 6.57% (vs. 6.6% in FY13), while the portfolio revaluation gained by S$131.1m.

… and balance sheet

The leverage ratio increased slightly to 30.0% from 28.3% in 4QFY13. This is expected to grow to 31.2% after funding the committed investments. To date, c.65% of the total debt due this year has been financed at a competitive rate. Currently, all-in borrowing costs remain steady at 2.7% (and is expected to creep up to c.2.8% after the refinancing of loans due this year), while c.65% of total debt are hedged under a fixed rate for an average of 3.5 years.

We maintain a Hold rating

We remain mildly cautious on its outlook with c.21.3% of total leases (as a percentage of AREIT’s property income) set to expire in FY14/15, coupled with rising operating expenses and a relatively large supply of industrial space. Having said that, any short-term drop in vacancy is expected to be mitigated by positive rental reversions. We expect it to achieve mid-to-high single digits for the renewed leases in the coming year. We maintain a Hold rating with an unchanged target price of S$2.36.