Author: tfwee
A-REIT – DMG
A Good Start
1QFY10 results above expectations. A-REIT reported a 6.9% YoY fall (+12.1% QoQ) in 1Q10 DPU to 3.62¢, above ours and consensus estimates. Annualised DPU came in at 14.48¢, 8.8% above our FY10 forecast of 13.3¢ (10.5% above the Street’s 13.1¢ estimates). Revenue was up 10.7% due to positive rental reversion and contributions from new acquired properties and development projects. A-REIT will trade ex-1Q10 distribution on 29 Jul 2009. We have raised our DDM-backed target price to S$1.72 (S$1.57 previously) to reflect a lower cost-of-equity assumption of 9% (9.7% previously). Maintain BUY.
Earnings resilience expected despite increasing tenants in arrears. Our recent channel checks on A-REIT suggest more industrial tenants in arrears in rental payments given the recessionary economic conditions. Management confirmed that about 1% of its NLA (~ S$3m annual revenue) is highly vulnerable to full-fledged default. In any case, A-REIT has already received S$2.1m in security deposits from these tenants. On a portfolio basis, A-REIT is backed by 6 months of security deposits, mitigating downside DPU risks. While earnings impact may be muted, we believe the loss of a single major tenant may be fairly damaging to the perception of A-REIT’s stable of assets.
Occupancy at healthy levels. Reflecting the slowdown in global demand, occupancy rate for A-REIT’s multi-tenanted properties declined marginally to 94.0% from 95.3%. However, overall portfolio occupancy remains high at 97.1% (97.8% in 4QFY09) due to the contribution from single tenanted buildings with long term leases. We expect positive rental reversion, albeit at a slower pace, for the Business & Science Parks and Hi-Tech Industrial properties as these properties are 30% under-rented.
Trading at attractive yields. At current prices, A-REIT offers investors a stable dividend yield of 8.5% for FY10 and 8.7% for FY11 – with dividends well supported by the long-term leases on single-tenanted buildings which accounts for 50% of revenue. We recommend buy on dips as stock has rallied 48% since Mar 09.
A-REIT – CIMB
Stable performance
• Meeting expectations in the first quarter. A-REIT’s 1Q10 results met consensus and our expectations. Net property income of S$80.7m (+15.8% yoy) and distributable income of S$61.0m (+17.9% yoy) was reported, with growth attributed mainly to an enlarged portfolio base of 89 properties vs 86 properties one year ago. DPU declined 7% yoy to 3.62cts, due to increased number of units after its rights issue. DPU for the first quarter forms 28% of our forecast of 12.8cts for FY10.
• Occupancy down marginally, but reversions holding up. Portfolio occupancy was down 70bp qoq to 97.1% as at end-Jun. This was mainly attributed to a decline in the occupancy rate for its multi-tenanted properties which came down to 94.0% from 95.3% a quarter ago. A-REIT’s Business and Science Park segment and Hi- Tech segment continued to have positive reversions, although at a slower pace, as rents of expiring leases remain significantly below market rental rates. After renewing 689,115sf of net lettable area (NLA) in 1Q10, A-REIT is left with 9.4% of its gross revenue due for renewal for the rest of the financial year, down from 14.1% due at the beginning of the financial year.
• Tenant risk updates. A-REIT estimates that about 129,167sf (0.6% of total NLA) of NLA accounting for S$0.14m (0.4% of total monthly revenue) of gross revenue is occupied by tenants that are considered vulnerable. However this risk is mitigated by S$1.08m of security deposits held by A-REIT. In the quarter, 88,330sf of space accounted for 0.64% of A-REIT’s gross revenue from 13 International Business Park has been reposed as the master tenant, LabOne, was unable to fulfil its lease obligations. A-REIT has 8 months of security deposit which will be used to pay rent due while the space is being marketed. 36.9% of the space has since been leased at rates not lower than the existing rate and another 16.8% of space is in active negotiation with a prospective tenant.
• Maintain Neutral at unchanged target price of S$1.68 (discount 8.5%). We expect occupancy levels to continue to weaken due to the uncertain outlook of industrial indicators. However, increased contributions of AREIT’s built-to-suit development projects completing over FY10 and built-in rental growth for its leaseback arrangements will moderate the decline in revenue.
Cambridge – BT
CAMBRIDGE Industrial Trust is not taking up an option to buy and lease back a $55.2 million industrial property at Tai Seng Street.
The vendor, Natural Cool Holdings, announced the termination of the option agreement yesterday.
Cambridge, which was to have secured equity financing for the purchase by June 30, informed Natural Cool that it was not proceeding with the purchase.
Natural Cool secured shareholder approval for the sale back in November 2007. The plan was to sell Lot 6501T at Tai Seng Street/Tai Seng Avenue to Cambridge and to lease back the property at not more than 8 per cent of the purchase price a year. The lot had leasehold interest for 30 years with an option to renew for a further 30 years.
The agreement was later delayed after certain changes in the terms and conditions were agreed.
A-Reit – BT
ASCENDAS Real Estate Investment Trust (A-Reit) yesterday posted a net property income of $80.7 million for its first quarter ended June 30, 2009. This is 15.8 per cent more than that a year ago, due mainly to contributions from a bigger portfolio.
Income available for distribution also increased by 17.9 per cent to $61 million.
But while earnings rose, the unit base also grew from the private placement and preferential offering of new units at the start of 2009. As a result, distributable income per unit (DPU) in Q109 dropped to 3.62 cents – down 6.9 per cent from 3.89 cents in the same period last year. Taking into account units issued as at June 30, 2009, DPU in Q108 would have been 3.07 cents. On this pro forma basis, DPU in Q109 would be 17.9 per cent more.
A-Reit continued to enjoy positive rental reversion for renewed leases at its business and science parks, hi-tech industrial space and logistics and distribution centres during the downturn. The increase, however, was smaller compared with a year ago. Renewal rates at its light industrial space fell. The overall occupancy rate for A-Reit’s portfolio dropped slightly to 97.1 per cent in Q1 09, from 98.6 per cent a year ago.
As at June 30, A-Reit has 89 properties with a total book value of about $4.4 billion. The weighted lease term to expiry is about five years. Only 9.4 per cent of A-Reit’s gross revenue is due for renewal for the rest of the financial year.
‘Credit market conditions have improved in the last few months and interest margins have also improved slightly,’ A-Reit said. It added that it will continue to diversify funding sources, and it is finalising the issuance of a four-year $125 million fixed-rate note. A-Reit’s aggregate leverage as at June 30 was 35.5 per cent.
A-Reit said that its fortunes will depend largely on whether a sustainable recovery comes, especially in terms of global end-consumer demand. ‘We expect the net property income outlook for A-Reit for FY09/10 to be about the level achieved in FY08/09,’ it said. ‘However, with an expected higher cost of borrowing, the income available for distribution may be lower and will also be spread over a larger unit base.’