Category: A-REIT
A-REIT – CIMB
Industrials looking up
• Results in line; upgrade to Neutral from Underperform. FY10 DPU of 13.1cts was in line with Street and our expectations, forming 101% of our estimate. We make moderate adjustments to incorporate actual occupancy rates in the last quarter. Our DPU estimates decrease by 2% for FY11-12. We also introduce a DPU forecast of 14.8cts for FY13. Our DDM-based target price (discount rate 8.4%) is intact at S$2.02. AREIT offers a forward dividend yield of 7.3%. With a strong economic recovery, we believe the outlook is looking up for industrialists, auguring well for its portfolio. We upgrade the stock to Neutral in view of this. AREIT also offers some hedge against inflation with 32.5% of its leases structured with CPIpegged adjustments. Nonetheless, it is expensive against peers at a 26% premium to book value.
• FY10 net property income of S$320m was up 7.9% yoy from positive rental reversions (1-3% p.a.) in multi-tenanted buildings and step-up increases for singletenant buildings. Even more positive was take-up by new tenants, which had risen significantly qoq for Business & Science Parks (+13.8% qoq) and Light Industrial (+9% qoq). Portfolio occupancy as at Mar 10 moderated to 95.7%, down from 97.8% last year. Business Parks’ occupancy dipped 6.7% pts from last year. However, this was in part due to the late completion of DBS Asia Hub and Plaza 8 @ CBP where tenants were still fitting out.
• Rental income to increase organically and through acquisitions. Revenue contributions from FY11 are expected to climb with the following: 1) acquisitions of DBS Asia Hub and 31 Joo Koon Circle last year, with the sales only completing in Mar 2010; 2) full contributions from development projects completed late last year: 71 Alps Avenue, Plaza 8 @ CBP and 38A Kim Chuan Road; 3) anticipated improved occupancy; and 4) step-up increases in sale-and-leaseback leases. Management guides that sale-and-leaseback acquisitions as well as build-to-suit buildings remain possible in Singapore in the coming year. Although it remains interested in overseas acquisitions, there is nothing on the horizon yet. Current asset leverage is comfortable at 31.6%, with debt headroom of S$1.2bn if we assume asset leverage of 45%.
SREITs – OCBC
1Q10 results preview
In 1Q10, YoY DPU improvements for most... The majority of the S-REIT universe will report 1Q CY10 results over the next two weeks, with CapitaCommercial Trust (CCT) kicking off the season on 16 Apr. Within our coverage universe, we expect Ascott Residence Trust (ART) to show a YoY improvement in DPU on the back of stronger occupancy rates and RevPAU1 . Based on our estimates, Mapletree Logistics Trust and Frasers Centrepoint Trust (FCT) could also see a YoY pick-up in DPU for the quarter due to a boost from recent acquisitions. FCT’s earnings in the preceding year were also impacted by asset works. CapitaMall Trust may also post a YoY increase in DPU as the REIT retained part of its distributable income in 1Q09. We expect Ascendas REIT to report stable operating performance, with this quarter’s DPU up 2.8% YoY.
…but not all. On the other hand, we expect Suntec REIT to report a YoY decline in DPU due primarily to a larger unit base (roughly 1.8b units now versus 1.6b units a year ago). We also estimate that CCT may record a YoY fall in DPU due to dilution from its 2009 rights issue. Meanwhile the Indonesian Rupiah continues to re-rate strongly (6596 IDR/SGD on average in 1Q10 versus 7701 IDR/SGD in 1Q09). The IDR’s ascent over the hedged rate employed by LMIR Trust could impact YoY DPU performance despite a stronger portfolio that has seen steady improvements in occupancy.
Leaping or waiting? Our primary focus this season is on the tone of manager guidance. REIT managers have been fairly aggressive and opportunistic in 2010 so far, with a sizeable S$1,218m worth of acquisitions announced year-to-date. The equity market was also active with FCT’s S$182.2m placement and the listing of Cache Logistics Trust [NOT RATED], whose S$417.3m IPO was 7.8x subscribed. The question is what happens next – market worries about how the second half of this year pans out have been well-documented and the consensus view is for a rather benign economic recovery. How this corresponds to/deviates from REIT managers’ guidance of individual earnings performance will be important to watch. Additionally, the delicate balance between 2H10 uncertainties and market appetite may prompt REIT managers to launch acquisition/fund raising plans sooner rather than later. How managers lay out acquisition and debt re-financing plans will also be worth tracking, in our view. We maintain our OVERWEIGHT stance on the sector. Top picks are ART and Suntec.
A-REIT – BT
A-Reit boosts capital base to refinance, fund acquisitions
INDUSTRIAL landlord Ascendas Real Estate Investment Trust (A-Reit) has enhanced its capital structure through a series of capital management initiatives.
As a result, the trust has effectively extended its weighted average debt maturity to 4.5 years – from 2.4 years – and secured funds for acquisitions, it said yesterday.
The trust has extended a $300 million loan that was due this month by seven years to March 2017. It also decided to pay off 165 million euros (S$317 million) of debt due in May 2012 now ‘in view of the significant amount of refinancing expected in the Singapore real estate sector in 2012’.
After the euro debt has been paid off, 23 properties valued at $1.2 billion will no longer be mortgaged. A-Reit has 91 properties in Singapore worth about $4.8 billion in all.
The trust also said a $300 million exchangeable collateralised securities issue – which it announced on Monday – has been successful. The issue attracted strong participation from over 70 institutional investors and was 4.5 times subscribed.
The securities, due in 2017, come with a put option in 2015. They were priced at a coupon and yield to maturity of 1.6 per cent and an exchange price of $2.45 – which is a 25 per cent premium to A-Reit’s closing price on March 15.
A-Reit will use the proceeds from the issue to refinance existing borrowings and finance the acquisition and development of properties.
With all of the initiatives, the trust has increased its weighted average debt maturity and managed to gain funds for future acquisitions.
‘Other than the $150 million medium-term notes and the $138 million committed revolving credit facility due in 2011, A-Reit does not have any major debt refinancing till 2014 and is therefore well positioned to capitalise on growth opportunities moving forward,’ the trust said in a filing to the Singapore Exchange.
A-Reit lost two cents to close at $1.94 yesterday.
A-REIT – CNA
| A-REIT enhances capital base to refinance borrowings, fund acquisitions |
Mainboard-listed Ascendas Real Estate Investment Trust (A-REIT) said it has enhanced its capital structure through a series of capital management initiatives.
It said it has conducted a successful offering of S$300 million of exchangeable collaterised securities (ECS) due in 2017 with a put option in 2015. The ECS was priced at a coupon and yield to maturity of 1.6 per cent with an initial exchange price of S$2.45 per unit.
Proceeds from the ECS issue will be used to refinance its existing borrowings, finance acquisitions and development of properties by A-REIT.
A-REIT added that it has recently successfully extended its S$300-million term loan due in March 2010 by seven years to March 2017.
As a result of all the moves, A-REIT's weighted average debt maturity has been extended from 2.4 years to 4.5 years.
REITs – OCBC
Upgrading view to OW; Ascott & Suntec top picks
4Q CY2009 results review. Five out of the eight S-REITs under our coverage reported earnings in line with our estimates, with quarterly DPU differing 0-4% from our estimates. A- REIT, Mapletree Logistics Trust (MLT), and CapitaCommercial Trust (CCT) beat our DPU estimates by 9%, 9.5% and 17.5% respectively.
Significant activity year-to-date. In the past two months, the S-REIT sector has announced a sizeable S$1,218m worth of acquisitions. These have primarily been funded on the back of proceeds from equity issues completed in 2009 and 2010. K-REIT [NOT RATED] and CDL Hospitality Trusts [NR] made their maiden foray outside of Singapore into Australia. We believe this was primarily motivated by a search for value – distressed or even stressed opportunities are currently more plentiful in regions such as Australia and Japan vis-à-vis Singapore. Meanwhile, CCT agreed to divest Robinson Point for S$203.3m or roughly S$1527 per square feet of net lettable area to a private real estate fund. It also announced it was exploring options to re-develop Starhub Centre and change its use to a mix of residential and commercial. The equity market was also active with Frasers Centrepoint Trust raising S$182.2m to fund the purchase of two retail malls from its sponsor. ARA Asset Management [NR] and CWT Ltd [NR] also announced plans to launch a new logistics REIT. We expect REIT managers to continue down the acquisition path with stressed opportunities emerging as the broader market deleverages and with investors demanding yield growth. In turn, this growth push is likely to require further equity issues due to increased leverage conservatism.
Upgrading sector view. In a volatile market, we believe yield is an increasingly important contributor of overall return. Greater visibility may also drive further price-to-book compression. Ascott Residence Trust continues to be one of our top picks as a proxy to corporate investment and travel. We replace MLT with Suntec REIT as our second top pick on Suntec’s often over-looked retail portfolio and a possible shift in sentiment towards office REITs on increasing leasing activity, active supply management, and a slowing rate of decline in office rents. MLT continues to be a viable investment option, in our view, for investors seeking yield and stability. We upgrade our view on S-REITs to OVERWEIGHT from NEUTRAL. Key risks to our thesis are macro-economic risk, interest rate hikes (more of an issue for big caps REITs that have re-rated strongly, in our view) and an uncertain policy climate (the easy liquidity regime has to end at some point).