Category: A-REIT
A-REIT – OCBC
Drag from higher property expenses
- 3QFY15 DPU inched up 1.4% YoY
- Expect positive rental reversions to continue
- Lower FV and downgrade to HOLD
3QFY15 DPU slightly below expectations
Ascendas REIT (A-REIT) reported its 3QFY15 results with topline meeting our expectations but DPU fell slightly short due to higher-thanexpected property operating expenses. Gross revenue rose 11.2% YoY to S$171.7m, underpinned by contribution from new acquisitions (Aperia and Hyflux Innovation Centre) and higher occupancy at Nexus@one-north and A-REIT City@Jinqiao. However, property operating expenses spiked up by 24.6% to S$57.1m due to higher property tax and other property expenses incurred following the conversion of certain properties from single-tenanted to multi-tenanted lease structures. As a result, DPU grew by a mild 1.4% YoY to 3.59 S cents. For 9MFY15, revenue increased 9.3% to S$499.7m and formed 75.3% of our FY15 forecast. DPU of 10.89 S cents translated into a growth of 1.9% and constituted 73.6% of our full-year projection.
Rental reversion trend remains positive
During 3QFY15, A-REIT managed to achieve positive rental reversions of 7.7% for leases which were renewed. This was driven largely by its Light Industrial (+13.0%) and HiSpecs Industrial (+11.1%) segments. We believe this trend would likely continue going forward, as the weighted average passing rent for most of A-REIT’s multi-tenanted space which are due for renewal in FY15 and FY16 are still below current spot rents. AREIT’s overall portfolio occupancy rebounded on a QoQ basis from 85.6% to 86.8%, meeting our expectations as we had highlighted in our 2QFY15 results note that its occupancy may trough soon.
Downgrade to HOLD
We trim our FY15 and FY16 DPU forecasts by 1.8% and 2.1%, respectively, as we input lower NPI margin assumptions in our model. This causes our DDM-derived fair value estimate to decline slightly from S$2.45 to S$2.42. A-REIT’s share price has performed well YTD, appreciating 5.9%. We believe valuations are now fair, with the stock trading at 1.24x FY15F P/B ratio. This is approximately half a standard deviation above its 5-year average forward P/B ratio of 1.20x. Hence, we downgrade A-REIT to HOLD.
A-REIT – Maybank Kim Eng
On solid footing
- 1QFY3/15 results in line with market expectations.
- Development and asset enhancement works worth SGD153.9m due for completion by end-2015 to buffer downside risks.
- Preferred for its well-diversified revenue; reiterate BUY with an unchanged DDM-derived TP.
No surprises; operating metrics remain steadfast
AREIT’s 1QFY3/15 revenue grew 8.1% YoY to SGD163.2m, bolstered by acquisitions, positive rental reversions and income support for A-REIT City @Jinqiao. DPU rose 2.5% YoY to 3.64 SGD cts. An 11.8% positive rental reversion was achieved for leases renewed in 1QFY3/15. Management expects mid- to high single-digit overall positive reversions for FY3/15E. Portfolio occupancy stayed high at 88.1% and 15.4% of its property income is due for renewal this year. AREIT’s financing cost remained flat QoQ at 2.70% with an average term of debt of 3.7 years (4QFY3/14: 3.3 years). Based on disclosed interest rate sensitivity analysis, DPU would decline by ~1%, or 0.15 SGD cts, for every 50bps increase in interest rates.
Well-diversified revenue
The AEI at 5 Toh Guan Road East was completed last quarter. The building is now 96% occupied. AREIT has also embarked on two new AEIs at a capex of SGD25.6m at The Gemini-Aries and the Science Hub. AREIT still has SGD153.9m worth of development and asset enhancement works, which are scheduled for completion in 2H14-4Q15. This should buffer downside risks in the event that property prices correct.
With a tenant base of around 1,330 in a portfolio of 105 properties, with no single asset accounting for more than 4.4% of monthly gross revenue, AREIT is well diversified in terms of rental income. Reiterate BUY with an unchanged DDM-derived TP of SGD2.65 (cost of equity = 7.0%; Tg = 1%).
A-REIT – OCBC
Outlook remains healthy
- 1QFY15 DPU up 2.5% YoY
- Rental reversion at 11.8%
- Embarking on two new AEIs
No surprises for 1QFY15 results
Ascendas REIT (A-REIT) reported a consistent set of 1QFY15 results last evening. NPI grew by 7.7% YoY to S$116.3m, while distributable income increased 2.8% to S$87.6m. The improved performance was mainly due to the recognition of rental income from Nexus@one-north, A-REIT City@Jinqiao and higher secured rentals within portfolio. DPU for the quarter stood at 3.64 S cents, up by a similar 2.5% YoY. This is in line with expectations, as the interim DPU formed 24.0% of both ours and consensus FY15 distribution forecasts. However, as A-REIT has changed its distribution frequency to semi-annual basis with effect from FY15, no payout will be made this quarter.
Portfolio operating metrics largely stable
For the quarter, we note that positive rental reversion averaging 11.8% (FY14: +14.8%) was achieved for leases renewed, as passing rents were still below the current market levels. Portfolio occupancy, on the other hand, eased from 89.6% in Mar to 88.1% as a result of the expiry of leases of two single-user assets. We understand that one is 61.2% occupied while the other is vacant. Nonetheless, management guided that the latter is expected to be fully occupied by Aug, which should bring the overall occupancy above the 90% level. Notably, the percentage of A-REIT’s rental due for renewal has been reduced from 21.3% at the start of FY15 to 15.4%, thanks to A-REIT’s proactive marketing and negotiation efforts. Looking ahead, management expects reversions to stay positive at mid-to-high single-digit rates in FY15.
Maintain BUY
A-REIT announced two new asset enhancement initiatives (AEIs) at the Gemini-Aries and Science Hub with an aggregate estimated value of S$25.6m to maximise the plot ratio and improve the
marketability of the assets. We note that the acquisition of Hyflux Innovation Centre and AEI at 5 Toh Guan Road East was completed in 1Q, and both properties are expected to start contributing to A-REIT’s income. We maintain BUY with an unchanged fair value of S$2.45 on A-REIT.