Small but accretive

• Acquires 2 industrial properties for S$179m

• Deepens presence within Jurong Lake District and Changi Business Park

• Maintain HOLD and S$2.14 TP

Acquires 2 industrial properties for S$179m. A-REIT announced the acquisition of 2 buildings in Singapore – 2 Corporation Place (S$99m,S$189psf GFA) and 3 Changi Business Park Vista (S$80m, S$482 psf GFA) – for a total consideration of S$179m. Located within Jurong Lake District and Changi Business Park respectively, the acquisitions will further deepen their already established presence within the 2 industrial hubs. The properties are multi-tenanted buildings housing quality tenants i.e MNCs involved in a variety of valued added sectors like IT, Electronics and engineering.

Initial yields estimated at 7.0%; accretive to earnings with potential upside. Initial yields for the properties are estimated to be in the range of c7.0%, higher when compared to its implied trading yield of close to c6.25%.The properties will be funded by debt – gearing as of Sept’11 is 31.5% and is expected to head to c37.5% after accounting for all its capex requirements by end 2013. We have revised our estimates slightly up by 0.7% in FY13 as we incorporate the acquisition in our numbers. In addition, we see potential upside at 2 Corporation Place, which is only 80% occupied currently; the manager remains confident of improving that given the property’s good accessibility.

Positive long-term prospects in Jurong/Changi Business Park regions; maintain HOLD and S$2.14 TP. While we remain cautious on the outlook of Business Parks/Hi-tech space performance in the immediate term (refer to Industrial REIT sector report dated 8th Dec’11), we acknowledge the longer term benefits of having an increasing exposure in these 2 established hubs. This allows A-REIT to offer new/existing tenants a variety of space choices in these locations. Maintain HOLD. S-REIT offers a FY12-13F yield of 6.7-7.0%.

A-Reit portfolio expands with 2 deals sealed

ASCENDAS Real Estate Investment Trust (A-Reit) has completed the acquisition of two buildings in Singapore for $179 million in total.

A-Reit bought Corporation Place at 2 Corporation Road for $99 million, a seven-storey high-spec industrial building with a gross floor area of 76,185 square metres (sq m) and a net lettable area of 57,645 sq m.

The building, which is located in the established Jurong industrial estate, is 80 per cent occupied, and houses tenants such as Hewlett Packard, Panasonic and Sunningdale Tech.

The seller is Corporation Place Limited, a company in which CapitaLand has a 75 per cent interest. CapitaLand is expected to recognise a gain of about $14.5 million.

A-Reit has also acquired 3 Changi Business Park Vista for $80 million. The six-storey building is A-Reit’s sixth property within the Changi Business Park.

It has a gross floor area and net lettable area of 18,388 sq m and 15,261 sq m respectively and its current occupancy is about 95 per cent.

The acquisitions are expected to have an annualised pro forma financial effect of an additional 0.1 cent per unit on the distribution per unit (DPU) for the fiscal year ended March 31, 2011.

The property trust now owns a total of 97 properties with the latest acquisitions.

For the two acquisitions, A-Reit is expected to incur an estimated transaction cost of about $2.21 million, including $1.79 million in acquisition fees paid to the manager, or 1 per cent of the totaL purchase price.

‘The location and specifications of these properties will further strengthen A-Reit’s market position in the Jurong Lake District and Changi Business Park area and enhance its operational efficiency,’ said Tan Ser Ping, chief executive officer of Ascendas Funds Management (S), the manager of A-Reit.

A-Reit units closed trading 2.3 per cent lower at $1.92 yesterday.

In an enviable position

Good performance expected to continue. Ascendas REIT (A-REIT) had exceeded our expectations for its 2QFY12 results, despite our previous forecasts of a healthy growth in operating performance. Going into 2012, we maintain our prognosis that A-REIT will continue to deliver, thanks to its well-diversified portfolio, and contributions from completed development projects and acquisitions. The group currently holds 94 properties, with a good mix of long and short term leases (48:52) and strong weighted average lease to expiry of ~4.3 years. It also has a pipeline of developments and asset enhancements which are expected to complete in the first quarter of 2012 (e.g. FedEx Singapore Regional Hub, FoodAxis@Senoko). This provides A-REIT with the stability and driver for continued growth in its distributable income.

Occupancy likely to remain resilient. Occupancy rates for 2QFY12 had also held up well, with multi-tenanted building occupancy at 93.0% and overall portfolio occupancy at 96.4%. This represents an improvement in occupancy rates from 92.5% and 96.2% seen in 1QFY12 respectively. While a multitude of factors, including (1) the PMI indicating a contraction in manufacturing for four consecutive months in Oct, (2) softer pace of increase in URA rental indices in 3Q11 and (3) modest GDP growth projection of 1-3% in 2012 by MTI, point to slower growth in economic activity going forward, we believe the impact on A-REIT is likely to be limited. In fact, our check on its historical performance showed that A-REIT had never registered rates below 90.5% and 95.3% for quarterly multitenanted and portfolio occupancy, respectively, over the past five fiscal years (which encompasses the global financial crisis). Thus, we do not expect A-REIT to experience a sharp decline in occupancy in the coming quarters, barring unforeseen circumstances.

Limited credit and cash call risk. As at 30 Sep, A-REIT’s aggregate leverage was at 31.5%, a healthy level in our view. Even after funding for all committed investments of ~S$255m (which will see leverage rise to 34.5%), the group still has debt headroom of ~S$555m before reaching the 40% mark. This relatively low leverage places A-REIT in a comfortable position to fund potential investment opportunities and to withstand any negative capital revaluation. According to Moody’s recent report on S-REITs, A-REIT’s leverage would still come within allowable parameters, and its rating would be safe from downgrade even with a 20% downward revaluation of assets (extreme scenario, in our view). Hence, we also see limited credit and cash call risk at this juncture. Maintain BUY and S$2.23 fair value.

A-Reit Q2 net property income up 7.9%

Distributable income climbs 14.1% to $70.5 million

ASCENDAS Real Estate Investment Trust (A-Reit) yesterday posted net property income of $90.6 million for the second quarter ended Sept 30, up 7.9 per cent from a year ago.

Distributable income climbed 14.1 per cent to $70.5 million, translating to distribution per unit (DPU) of 3.38 cents, a 2.4 per cent increase over the 3.30 cents posted a year ago.

For the half-year ended Sept 30, A-Reit’s net property income rose 4.7 per cent from a year ago to $179.3 million.

Distributable income grew 9.2 per cent to $136.4 million.

The half-year DPU stood at 6.58 cents – 1.3 per cent less than the 6.67 cents a year ago.

Adjusting for new units issued, the proforma DPU last year would have been 6.03 cents, leading to a 9.1 per cent gain.

As at Sept 30, A-Reit’s portfolio comprised 94 properties with a total asset value of about $5.7 billion.

Some of its investment highlights include Nordic European Centre, Ascendas Z-Link in Beijing, China (its maiden acquisition of a business park facility in the region), and the forward purchase of a business park property in Jinqiao, China, totalling $301.0 million.

A-Reit’s portfolio occupancy improved to 96.4 per cent of the portfolio, and 93.0 per cent for the multi-tenanted buildings from 96.2 per cent and 92.5 per cent in the previous quarter respectively.

It also enjoyed positive rental reversions of between 1.8 per cent and 11.6 per cent across all segments of its portfolio, the company said.

Within its portfolio, tenants from the electronics sector account for about 11.9 per cent of A-Reit’s portfolio gross revenue.

In terms of leases, 48 per cent are long-term versus 52 per cent short-term by asset value, with a weighted average lease to expiry of about 4.3 years.

A-Reit’s aggregate leverage ratio as at Sept 30 was 31.5 per cent, an improvement over the 34.3 per cent last year.

Even after funding committed investments of about $255 million, debt ratio will hit 34.5 per cent, giving headroom of about $555 million to reach 40 per cent aggregate leverage, the company noted.

A-Reit fell half a cent yesterday to close at $1.995.