Category: A-REIT
A-REIT – OCBC
STRONG RUN-UP LIKELY TO CAP FURTHER UPSIDE
- Diversified industrial landlord
- Positive outlook
- But further upside likely limited
Well-diversified portfolio
Ascendas REIT (A-REIT) is Singapore’s first listed business space and industrial REIT. It has a diversified portfolio of 101 properties in Singapore, comprising business and science park properties, hi-tech industrial properties, light industrial properties, and logistics and distribution centres, as well as a business park property in China. As at 30 Jun, A-REIT’s total assets amounted to ~S$6.6b. These properties house a tenant base of over 1,100 international and local companies from a wide range of industries and activities. A-REIT is managed by Ascendas Funds Management (S) Limited, a wholly owned subsidiary of Singapore-based Ascendas Group.
Commendable set of 1QFY13 results
For 1QFY13, we note that A-REIT turned in a commendable set of results, with DPU rising 10.3% YoY to 3.53 S cents despite an enlarged unit base post private placement. Operationally, A-REIT’s portfolio occupancy rate also improved to 94.6% from 94.3% in
4QFY12. For the rest of FY13, we understand that 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 areas due for renewal, we remain positive that A-REIT may continue to benefit from favourable rental reversions in the coming quarters.
Downgrade to HOLD on valuation grounds
In our view, A-REIT looks set to deliver another year of robust growth, supported by full-year contributions from its recent investments. However, we believe most of the positives have been reflected in its unit price, which has risen by 22.4% YTD. A-REIT is
currently trading at 1.2x P/B and is just 1.3% shy of our fair value of S$2.27. Its FY13F DPU yield of 6.2% is also lower than the industrial REIT subsector average of 7.6%. As upside is likely limited, we downgrade A-REIT from Buy to HOLD on valuation grounds.
Industrial REITs – OCBC
2Q12 RESULTS ROUNDUP
•Interim results matched projections
•Positive performance to carry on
•Good capital and lease management
Consistent set of results
Industrial landlords continued to deliver, meeting expectations for 2Q12. YoY growth in NPI ranging from 3.9-26.4% was seen among the REITs, bolstered by contribution from completed developments/ acquisitions, positive rental reversions and improved operational performances. Mapletree Industrial Trust was the top performer for the quarter, raking up 14.1% YoY increase in DPU. This was followed closely by Cambridge Industrial Trust and Ascendas REIT, with 13.9% and 10.3% growth respectively. Only AIMS AMP Capital Industrial REIT (AAREIT) and Cache Logistics Trust (CACHE) saw a sequential decline in DPU. However, this was due to the absence of distribution in retained income seen in 1Q by AAREIT. For CACHE, we note that it was attributable to an enlarged unit base arising from private placement to fund the acquisition of Pandan Logistics Hub, even though the property has yet to contribute to its income.
Positive outlook remains
Going forward, we believe that industrial REITs will likely maintain their financial performances. While most of the landlords acknowledge that the macroeconomic landscape has remained uncertain and volatile, they expect stable results from their portfolios, driven by contribution from recent investments and healthy leasing activities in the industrial space. A few industrial REITs also cited the possibility of further positive rental reversions, as current market rents are still above the passing rents at some of their assets.
Occupancy rate and gearing remained at healthy levels
Industrial REITs, we note, have also done well on their lease and capital management. The subsector average occupancy rate as at 30 Jun stood at 98.4%, representing a 60-bp improvement QoQ, while the weighted average lease to expiry held steady at 3.6 years. This reflects active portfolio management and continued strong demand for industrial property. In addition, the subsector aggregate leverage average was still comfortable at 33.5% (vs. 33.9% in 1Q). As such, we maintain our OVERWEIGHT rating on the industrial REIT subsector. Cache Logistics Trust remains our preferred pick, given its attractive FY12F DPU yield of 7.6% and robust portfolio.
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.
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.