Category: A-REIT
A-Reit – DMG
Scoop of the Day: A-REIT announced that it has signed an S&P to acquire two properties (DBS Asia Hub and 31 Joo Koon Building) for S$131m; and an MOU to acquire a property-under-development in Jurong for S$97.5m (expected acquisition completion in 2011/12). DBS Asia Hub is leased to DBS for 10 years while Joo Koon Building is leased to Flextronics Manufacturing for 5 years, both of which with annual rental escalation agreements. The acquisition of these two properties will grow A-REIT’s AUM by 2.8%. The acquisitions are expected to have a DPU accretion effect of 0.054¢ (+0.4%). The acquisitions will be funded entirely with net proceeds from its August 2009 placement. Maintain NEUTRAL with target price of S$2.11, pegged at 6.5% FY10 yield. We believe further retracement in stock price may present A-REIT as an attractive buying opportunity. At current share price, A-REIT offers investors an FY10 yield of 7.2%.
A-REIT – Nomura
Valuation risks remain
• Industrial valuers seemingly upbeat on asset values
Based on recent market valuations Ascendas REIT is unlikely to post marked changes in underlying asset values in its forthcoming 4Q10 results (April 2009), underscoring its low gearing of 0.31x. On our numbers, A-REIT’s valuation of its Singapore portfolio at cap rates of 7.0-7.25% seems modestly conservative in light of Mapletree Logistic Trust’s recent revaluation for its predominantly Singapore logistics portfolio at 6.5%. Notwithstanding broader market risks, we have trimmed our portfolio cap rate assumption by 50bp to reflect valuers’ more upbeat assessment of the industrial sector amid stabilising asset values. The 50bp decline in cap rates as well as marginal adjustments to the underlying achieved rents (following its 3Q FY10 results) sees our asset valuation rising by 12.3% (equivalent to S$0.26/unit, which flows directly to our intrinsic NAV, which is revised to S$1.66/unit from S$1.39/unit).
• Risks remain in the industrial sector
We still envisage risks in the industrial market — weakening demand and risks of negative reversions following a 29.2% y-y decline in industrial rents over the course of 2009 (according to Jones Lang La Salle) as warehouse vacancy rises to 10.0%.
• Price target revised to S$1.66; maintain REDUCE
A 50bp cut in our portfolio cap rate assumption resulted in a 10.5% increase in our gross asset valuations. Following adjustments to our model to reflect marginally higher net income as a consequence of lower operating expenses, our FY10 DPU forecast is raised to S¢13.4 versus S¢12.5 previously, delivering a FY10 yield of 6.9%. Our intrinsic NAV rises to S$1.66/share, although valuations prompt us to retain our REDUCE call.
A-REIT – JPM
Lack of catalyst – downgrade to Neutral
• We downgrade AREIT to Neutral, with a Dec-2010 DDM based price target of S$2.05/share unchanged. The stock is currently trading at 6% premium to our current NPV and 1.3x historical book, a level that is at the historical average, and has largely priced in the recovery of the industrial sector. With the expected lack of catalyst in the next 6-12 months and hence limited upside to our numbers, we see the stock to be range bound for now and offering total return of 6% this year.
• Carrying heavier equity load. In Aug 09, A-REIT raised over S$300 million equity to fund its future growth. While management has been actively looking for potential acquisitions and built-to-suit projects, the rapidly moving market has made it difficult for the deals to be closed. Given the still uncertain outlook and volatile market, we see high risk of A-REIT carrying this heavier equity load for a prolonged period.
• Strategic shift the long-term catalyst? With the portfolio size standing at S$4.5bn today, single acquisition of industrial property is unlikely to provide much accretion. As A-REIT continues to grow in size, portfolio acquisitions and potential M&A opportunities would, in our view, increasingly become an issue of focus. In addition, a change in investment mandate could also allow A-REIT to take more advantage of sponsor Ascendas’ wide presence in the region.
• Key upside risks to our Neutral rating include a faster than expected deployment of the access capital and a reversal of investors’ risk appetite which puts greater emphasis on low risk stable return. Key downside risks include worse than expected operating fundamentals.
A-REIT – BT
A-Reit Q3 property income up 9.7%
ASCENDAS Real Estate Investment Trust (A-Reit) yesterday posted a net property income of $81.3 million for the third quarter ended Dec 31, 2009 – up 9.7 per cent from a year ago.
Higher gross revenue – boosted by rental income from newly completed development projects – and lower property expenses helped lift the industrial Reit’s earnings. As a result, distributable income rose 13.4 per cent to $61.2 million over the same period.
Despite this, distribution per unit (DPU) fell 19.3 per cent to 3.27 cents in Q3, from 4.05 cents a year ago. This reflected the larger unit base, partly due to A-Reit’s share placement and preferential offering exercises.
On a proforma basis, adjusting for the increased number of units, DPU for Q3 last year would have been 2.88 cents. Compared with the DPU in Q3 this year, there would have been a 13.5 per cent increase.
For the rest of this financial year, the manager ‘expects to be able to deliver a return that is in line with market expectations’.
As at Dec 31, A-Reit’s portfolio comprised 91 properties with a total asset value of about $4.8 billion. The occupancy rate for the portfolio was 96.5 per cent, down from 97.2 per cent at Dec 31, 2008.
A-Reit still managed to secure positive rental reversion for renewed leases at its business and science parks, hi-tech industrial properties and logistics and distribution centres in the financial year to date.
‘However, the manager observed signs of moderation in the rate of positive rental reversion in line with current market rental trends,’ the Reit said.
A-Reit was also working on reducing its exposure to ‘vulnerable’ tenants. Its manager earlier identified 12,098 square metres of space as ‘vulnerable’. It has repossessed and re-let 2,416 sq m of space with no negative financial impact, and taken legal action against a tenant occupying 8,843 sq m.
As at Dec 31, A-Reit’s aggregate leverage stood at 31.2 per cent, sharply lower than the 42.2 per cent a year ago. It is in the process of refinancing a $300 million term loan facility maturing in March.
A-Reit units closed two cents lower at $2.02 yesterday.