Category: A-REIT
A-Reit – BT
ASCENDAS Real Estate Investment Trust (A-Reit) yesterday posted a net property income of $80.7 million for its first quarter ended June 30, 2009. This is 15.8 per cent more than that a year ago, due mainly to contributions from a bigger portfolio.
Income available for distribution also increased by 17.9 per cent to $61 million.
But while earnings rose, the unit base also grew from the private placement and preferential offering of new units at the start of 2009. As a result, distributable income per unit (DPU) in Q109 dropped to 3.62 cents – down 6.9 per cent from 3.89 cents in the same period last year. Taking into account units issued as at June 30, 2009, DPU in Q108 would have been 3.07 cents. On this pro forma basis, DPU in Q109 would be 17.9 per cent more.
A-Reit continued to enjoy positive rental reversion for renewed leases at its business and science parks, hi-tech industrial space and logistics and distribution centres during the downturn. The increase, however, was smaller compared with a year ago. Renewal rates at its light industrial space fell. The overall occupancy rate for A-Reit’s portfolio dropped slightly to 97.1 per cent in Q1 09, from 98.6 per cent a year ago.
As at June 30, A-Reit has 89 properties with a total book value of about $4.4 billion. The weighted lease term to expiry is about five years. Only 9.4 per cent of A-Reit’s gross revenue is due for renewal for the rest of the financial year.
‘Credit market conditions have improved in the last few months and interest margins have also improved slightly,’ A-Reit said. It added that it will continue to diversify funding sources, and it is finalising the issuance of a four-year $125 million fixed-rate note. A-Reit’s aggregate leverage as at June 30 was 35.5 per cent.
A-Reit said that its fortunes will depend largely on whether a sustainable recovery comes, especially in terms of global end-consumer demand. ‘We expect the net property income outlook for A-Reit for FY09/10 to be about the level achieved in FY08/09,’ it said. ‘However, with an expected higher cost of borrowing, the income available for distribution may be lower and will also be spread over a larger unit base.’
Industrial REITs – Daiwa
2Q09 preview – some minor deterioration expected
What has changed?
• The Singapore-listed real-estate investment trusts (S-REITs) in the industrial space are due to be among the first to announce their 2Q09 results, from 17 July.
Impact
• We expect minor (0.6-2.6%) quarter-on-quarter declines in net-property income (NPI) arising from a slight uptrend in overall vacancy rates and a more challenging leasing environment (for renewals).
• We expect year-on-year declines in their distribution-per-unit (DPU) due to equity fundraising for Ascendas REIT (AREIT) and Mapletree Logistics Trust (MLT), and higher borrowing costs for Cambridge Industrial Trust (Cambridge).
Valuation
• We believe the implied trading yields (implied cap rates) of 8.1% for MLT and 10.9% for Cambridge (based on our estimates) are attractive relative to the cap rate of 7% for Singapore industrial properties. From this perspective, AREIT is unattractive, at an implied trading yield (based on our estimates) of about 6.6%.
Catalysts and action
• We maintain our Negative rating for the industrial segment, and our 4 (Underperform) rating for AREIT, which we believe continues to trade at an excessive premium (at a price to NAV of 0.94x) to the sector and its industrial peers.
• We believe the biggest risk to this segment is the relentless decline in asset values, down 7-11.3% QoQ for 2Q09 and in line with similar quarter-on-quarter falls for industrial rents, according to Jones Lang LaSalle.
• We maintain our 3 (Hold) rating for MLT as we believe it offers reasonable value, but little else now that its acquisition-growth model has stalled.
• Our top pick in this segment is Cambridge, 1 (Buy) rating, for its attractive valuations and, in our opinion, highly defensive lease-renewal profile. We believe a positive price trigger for Cambridge would be a well-timed asset disposal that would help reduce gearing.
AREIT – CIMB
Fully valued
• Maintain Neutral. The outlook for the industrial market remains poor. Occupancy of AREIT’s sale-and-leaseback buildings is likely to hold at 100%, while that of its multi-tenanted buildings is likely to decline due to downsizing by tenants. However, we expect the fall in occupancy to be moderated by modest rental reversions for the Business & Science Parks and Hi-Tech segments due to a significant gap between passing rents and market rents; as well as development projects completed last year and this year. A-REIT remains one of the most diversified industrial REITs by segment and number of tenants.
• Declining office rents diminish attraction of business park/hi-tech space. More than 50% of A-REIT’s assets by value are business park/hi-tech space. With office rents falling sharply in the last six months, the rental gap between business park/hitech space and prime office space has narrowed sharply, diminishing the attraction of these industrial segments to office users. Although we do not expect an exodus of office users from business park/hi-tech space, we anticipate that asking rents and new take-up will be under pressure.
• DDM-derived target price raised to S$1.68 (from S$1.63). We maintain our estimates but use a lower discount rate of 8.5% (from 8.7%) based on a lower riskfree rate of 4.8% applied across our REIT universe. P/BV for AREIT has risen to 1.0x vs. the sector average of 0.6x, making it the most expensive REIT. At current levels, we believe AREIT is fully valued.