Category: A-REIT
AREIT – DBS
Singtel Booster
• BTS facility for Singtel at total cost of cS$176m
• Guaranteed income for 20 years + option for a further 10 years
• Estimated DPU accretion at 1-2% from FY11 onwards
• Upgrade to BUY, TP S$1.60 based on DCF
Build-to-suit (BTS) facility for Singtel. Ascendas REIT announced that they have secured an S&P with Singtel to develop a BTS facility at Paya Labar Road, next to Singtel’s Kim Chuan Telecommunication complex (owned by A-reit). Total cost is estimated at S$176m (c.S$100m for construction + cS$76m for equipment) and will be fully funded by debt. This project is estimated to TOP in 1Q 2010.
Secured for 20 years + option for another 10 years. Upon completion, Singtel will lease the property for an initial 20 years with annual escalation and have an option to extend it for a further 10 year period. This ensures income stability and visibility for the reit before embarking on construction. Impact on DPU from this proposed development is projected to be -0.06 Scts in FY10F and +0.13 to 0.26 Scts in FY11-12F.
Financial metrics unlikely to be stretched. Financial metrics likely to remain relatively strong with gearing within 40% level, assuming no further asset write-downs. Interest cover remains relatively healthy at c4.0x.
Upgrade to BUY, TP S$1.60. We like A-reit for its cautious approach towards growing its portfolio and earnings during tough operating conditions. Upgrade to BUY, TP S$1.60 based on DCF. Current price offers 17% upside to our TP and offers a FY10-11F prospective yield of 9%.
AREIT – BT
A-Reit to develop building for lease to SingTel
TOP for the $175m project is expected in the first quarter of 2010
ASCENDAS Real Estate Investment Trust (A-Reit) has signed a deal with Singapore Telecommunications (SingTel) to develop a high- tech industrial building at Kim Chuan Road for a total cost of around $175.4 million.
The proposed development is a built-to-suit project for lease to SingTel. SingTel will lease the entire building for an initial tenure of 20 years with annual rental escalation with an option to renew for a further 10 years on expiry.
The land, measuring around 13,879 square metres, will be used by A-Reit to build a nine storey high-tech building with the total investment for the base building and land set at around $99.6 million.
A further investment of up to $75.8 million would be made in the installation of additional mechanical and electrical equipment to enhance the building specifications to the requirements of SingTel.
The development is within walking distance to the future Tai Seng MRT station and is next to the Kim Chuan Telecommunications Complex, an existing building owned by A-Reit which is currently also leased to SingTel.
The building is expected to have a gross floor area of approximately 32,862 square metres on completion.
The tenure of the land comprises the unexpired portion of a leasehold term of 99 years commencing from March 31, 1992. The Temporary Occupation Permit (TOP) for the development is expected in the first quarter of 2010.
Upon the execution of the sale and purchase (S&P) agreement, A-Reit will hand over to SingTel an on-demand banker’s guarantee for the deposit amount of $1.6 million representing 10 per cent of the purchase price of $16 million for the piece of land.
The land valuation was done by DTZ Debenham Tie Leung on April 1 this year.
Also on completion of the S&P agreement, the two parties will enter into the agreement for lease.
A-Reit will fund the development by debt and/or equity.
The project is expected to increase A-Reit’s net profit for fiscal 2008-09 by about 2 per cent, assuming that the project was completed at the beginning of that financial year and was funded using 100 per cent debt funding.
AREIT – BT
A-Reit full-year DPU rises 7.4%
ASCENDAS Real Estate Investment Trust (A-Reit) yesterday reported a distribution per unit (DPU) of 3.23 cents for its fourth quarter ended March 31. This raised full-year DPU to 15.18 cents, a rise of 7.4 per cent on the back of sturdy growth in rental and occupancy rates.
The Q4 DPU of 3.23 cents was 12.5 per cent lower than the year-ago DPU of 3.69 cents. A-Reit said this was because of dilution by new units and the payment of performance fees in cash for the year. Otherwise, Q4 DPU would have been 3.8 cents, a rise of 3 per cent.
Full-year net property income (NPI) grew 21.8 per cent to $296.6 million, with organic growth – rentals and occupancy rate growth – contributing 39.3 per cent of the NPI growth. The rest of NPI growth was derived from investment and development projects completed over the course of the year.
A healthy portfolio occupancy of 97.8 per cent was achieved while occupancy rate for multi-tenanted properties was 95.3 per cent as at March 31, thanks to active leasing efforts by the property manager. Positive rental reversion in renewal rental rates was seen across the portfolio.
For the year, A-Reit completed three development projects at a total development cost of $178.2 million and made two acquisitions totalling $271.8 million.
A-Reit recorded a revaluation loss of 2.5 per cent to about $4.43 billion as at March 31 following a portfolio revaluation.
The NPI outlook for fiscal 2009 is expected to be about the level achieved for fiscal 2008, the trust manager said.
But with the expected higher cost of borrowing, distribution income may be lower and will also spread over a larger unit base due to recent fund-raising exercises.
A-Reit expects to keep a payout ratio of 100 per cent of distributable income, a policy it has maintained since listing, Tan Ser Ping, CEO of the trust manager, told reporters and analysts at a briefing last evening.
Explaining the payment of performance fee in cash, Mr Tan said: ‘This is to minimise the gap between the earnings per unit (EPU) and DPU to avoid paying distribution out of capital.’
Some 14.1 per cent of portfolio gross revenue is due for renewal over the next 12 months.
The current passing rentals for space due for renewal in some sub-sectors of the portfolio are lower than the spot rates and Mr Tan said he expects this weakness to persist for a while.
A-Reit has a total development pipeline costing $158.7 million. Some $132.7 million of investment is committed, of which $76.3 million has been spent and another $56.4 million of development cost require funding.
‘Over time, there may be some distressed assets opportunities that may come along but our focus is on high-quality tenants and properties that have good potential in terms of upside,’ Mr Tan said.
To strengthen its balance sheet and fund committed development projects, A-Reit raised $408 million in January and February through a private placement and a preferential offer. As at March 31, its aggregate leverage was 35.5 per cent, down from 38.2 per cent a year ago.
It also secured new loans of $200 million and incorporated a $1 billion medium term note (MTN) programme. Some 90 per cent of interest rate exposure is hedged into fixed rate for the next 3.4 years with weighted average all-in funding cost of 3.67 per cent.
Its interest cover ratio as at March 31 was 4.6 times, down from 5.1 times a year ago.
A-Reit’s $300 million of commercial mortgage backed securities that will mature this year will be repaid by existing credit facilities while its $246 million revolving credit facilities due this year will be partially paid down and partially refinanced.
Industrial REITs – DBS
Property Tour Highlights
We paid a visit to Ascendas REIT (A-REIT) and Mapletree Logistics Trust (MLT) properties located in Singapore’s major industrial and business parks. We went away pleased with the respective landlords ‘hands on’ management of the properties and having a good grasp of tenants’ requests and needs. Maintain BUY for AREIT (S$1.56) and MLT (S$0.44), which are trading at FY10- 11DPU yields of c. 9% and 14% respectively.
A tour of selected MLT and AREIT properties. We visited a total of 8 selected industrial properties in Ascendas REIT (A-REIT) and Mapletree Logistics Trust (MLT) portfolio located in Singapore’s major industrial and business parks. These properties ranged from business parks, hi-tech industrial buildings to logistics & warehouses (L%W).
Well maintained with stable occupancies. We are pleased to say that the properties we visited are well maintained and managed with on-site representatives to cater to tenants’ needs and requests. As such, occupancy levels at A-REIT and MLT’s portfolio have remained stable at around 99% over the past year, with strong retention rates of over 80% in FY08. Looking ahead, strong rapport with tenants and proactive leasing strategies established by MLT and A-REIT will likely sway tenants’ decisions toward continuing staying put at their properties.
Asking rentals are easing but within expectations. In our discussions with the various asset managers, we understand that asking rents have eased generally. For business parks space and Hi-tech industrial space, asking rents have dipped slightly, since the peak, to S$2.80 – S$3.50 psf pm. However, this is still above their respective average passing rents of c. S$2.55 psf pm and S$2.09 psf pm (as of reported in 3Q09). For L&W properties, we do not expect rates to fall significantly as it has remained relatively stable over the years.
TP for A-REIT raised to S$1.56, Maintain BUY on MLT, TP S$0.44. We continue to like an exposure to industrial space given its longer lease profile, will ensure more resilient earnings moving forward. Both A-REIT and MLT has 40% and 50% of its earnings locked in through long term sales and leaseback contracts. We roll forward our valuations for A-REIT to FY10, resulting in our adjusted target price of S$1.56.
Industrial REITs – CIMB
Relative resilience
• Industrial P/BV at 0.37x; appears resilient. The industrial sector looks attractive at an average P/BV of 0.37x, close to the REIT sector average of 0.34x. Resilience is underpinned by a historical time lag between changes in leading industrial indicators (including NODX, sea and air cargo throughput) and occupancy levels that could exceed 12 months.
• Expect further support from government for industrial users. The government traditionally supports industrial users by reducing industrial land and building rents, and dishing out rental and property tax rebates. We anticipate this assistance to continue as the manufacturing sector remains the single largest driver of Singapore’s GDP. We expect industrial REITs to benefit three ways from this: 1) reduced land rent payments for industrial REITs; 2) increased sustainability for REIT tenants paying land rent directly to JTC; and 3) increased sustainability of the other industrial property users, on which industrial REITs’ tenants are inter-dependent.
• Low tenant default risks. Within the industrial REIT space, we prefer REITs with low tenant default risks. These would be represented by large and diversified asset and tenant bases, limited concentration on single tenants and significant MNC representation.
• Good capital management. All three industrial REITs are comfortably geared at below 40% with no major refinancing needs over the next two years. Cash calls for MLT and CREIT are not likely in the current year. In terms of capital management, all three industrial REITs look well-positioned to weather the storm
• Maintain Overweight; A-REIT our top pick. Among industrial REITs, we favour AREIT for its least tenant default risk, attributable to its large and diversified asset base, and large and quality tenant base. We also like MLT for its geographical diversification which moderates its risk of asset concentration. CREIT is our least preferred stock for its smaller asset base and higher tenant-concentration risks.