3QFY08: Fewer acquisitions, more development projects

Rising rental rates for Science & Business Parks and Hi-Tech Industrial sectors. Gross revenue expanded 12.9% yoy to S$80.2m in 3Q08. Overall occupancy reached an all-time high of 98.7%, compared to 96.1% last year. This is driven by demand for office space outside the Central Business District (CBD) and multinational companies expanding their operations in Singapore. A-REIT announced DPU of 3.56 cents for 3QFY08, an increase of 11.3% yoy. This will be paid on 29 Feb 08.

A-REIT has renewed and signed new leases including expansion for total net lettable area of 505,182sf during the quarter. They represented 6.8% of net lettable area for multi-tenanted buildings. Renewal rental rates for Science & Business Parks and Hi-Tech Industrial sectors were 46.1% and 71.5% higher compared to previous transacted rates. New tenants include Pfizer at The Capricorn. A-REIT also completed the acquisition of Goldin Building, a logistics building at Pioneer Walk, for S$22.5m.

Positive impact from rental reversion. A-REIT has a portfolio of 79 properties with average lease to expiry at 6.2 years. It benefits from the surge in office rental within the CBD. This has forced many companies to relocate backend operations to suburban locations. Only 1% of its leases will expire this year. Positive rental reversions will knick in subsequently with 42.7% of its leases expiring from 2009 to 2011. 52.8% of the leases expiring are in the high-growth
Science & Business Parks and Hi-Tech Industrial sectors.

More development projects. A-REIT has four development projects worth S$338m. HansaPoint@CBP, a partial built-to-suit development project, has achieved 100% pre-committed occupancy and is expected to be completed by Feb 08. The other three development projects are also substantially precommitted to tenants such as Zuellig Pharma and Citigroup. Development projects provide yield of 8-9% compared to yield of 6-6.5% from acquisitions.

Maintain BUY. A-REIT’s share price has retraced to a more attractive level and provides annualised distribution yield of 6.5%, among the highest for S-REITs.

Slowly and steadily

Comment on Results

A-REIT reported 15% higher net income available for distribution yoy at S$47.2, on the back of 13% increase in gross revenues to S$80.2m. This was mainly due to additional rental income from completed acquisitions and positive rental reversions from its high-tech industrials and business as well as science parks.

Average occupancy levels rose to 98.7% as at 31 Dec 07 compared to 96.1% a year ago.

Leverage at 38.6%. As at end Dec 07, AREIT had an aggregate gearing of 38.6%, which was 88% fixed at 3.39% and an average weighted term of 3.92 years. Interest cover ratio was 5.32x.

Recommendation

As at 31 Dec’07, A-REIT’s portfolio consisted of 79 properties with five additional investments worth S$277m and MOUs worth S$200m expected to be included into the portfolio in stages
over the next few years. In the near future, we await HansaPoint @ Changi Business and Plot 7 & 8 Changi LogisPark to be injected into the portfolio (Total value: S$61m).

Moving forward, we expect A-REIT to seek higher yielding development projects and purchase 3rd party acquisitions at the same time.

Maintain BUY at TP S$2.80 based on DCF valuation. We have reduced FY09 DPU contribution by 2% as we are now assuming S$200m worth of acquisitions in FY08 (previous : S$400m). YTD, acquisitions have hit S$98m and we expect part of the MOUs worth S$200m to materialise in FY08. In view of the additional investments secured and possible 3rd party acquisitions coming on stream, we maintain our forward acquisition assumptions of S$400m p.a.
till FY10.

A-Reit distributable income up 15% in Q3

ASCENDAS Real Estate Investment Trust (A-Reit) yesterday reported distributable income of $47.2 million for the three months to end-December, up 15 per cent from a year earlier.

Gross revenue for the third quarter of its financial year, which ends on March 31, rose 13 per cent to $80.2 million, due mainly to additional rental income from a string of completed acquisitions, including the Courts and Giant warehouse retail facilities in Tampines and the completed asset enhancement at The Alpha building in Science Park II.

A-Reit’s distribution per unit for the three-month period was 3.56 cents, 11 per cent higher than a year ago.

For the nine months ended Dec 31, A-Reit’s distributable income came to $138.3 million, up 14 per cent from the same period a year ago. Gross revenue rose 14 per cent to $237.8 million.

The trust’s annualised distribution per unit of 13.92 cents – based on the 10.44 cents for the nine months ended December – translates into a distribution yield of 6.4 per cent, based on A-Reit’s closing price of $2.19 yesterday. The counter ended nine cents higher in yesterday’s trading.

A-Reit’s spokeswoman declined to comment on market speculation that Australia’s Goodman Group is poised to exit Ascendas-MGM Funds Management, a 60-40 joint venture between Ascendas Pte Ltd and Goodman International that manages A-Reit.

A-Reit’s portfolio comprised 79 properties at the end of 2007, compared with 68 properties a year earlier. The trust’s portfolio includes logistics and distribution centres, business and science park buildings, and light industrial and high-tech industrial properties.

In Q3, A-Reit’s portfolio occupancy rate rose to a high of 98.7 per cent, from 96.1 per cent a year ago. The trust’s properties in the business and science park sector achieved a 46.1 per cent increase in renewal rental rates versus existing rental rates while lease renewals for its high-tech industrial properties were at rental rates 71.5 per cent above existing rents, said A-Reit in a statement.

A-Reit’s portfolio hit record occupancy of 99% at end-2007

ASCENDAS Real Estate Investment Trust (A-Reit) said yesterday its overall portfolio occupancy rate increased to a record 98.7 per cent at end-2007 from 96.1 per cent at end-2006.
The occupancy rate for A-Reit’s multi-tenanted buildings rose to 97 per cent at end-2007 from 93.1 per cent at end-2006, the trust said.

Based on value, A-Reit’s portfolio comprises 51 per cent multi-tenanted buildings and 49 per cent sale- and-leaseback properties.

A-Reit renewed and signed new leases including expansions amounting to a net lettable area of 46,933 sq m for the three months ended Dec 31, 2007. These leases represent 6.8 per cent of the net lettable area of its multi-tenanted buildings and annualised rental income of $11.1 million.

Total new leases including expansions for the quarter were 16,961 sq m – 28.7 per cent in business and science parks, 32.8 per cent in hi-tech industrial buildings and 38.6 per cent in two other sectors – light industrial and flatted factories and logistics and distribution centres. A-Reit said HansaPoint@CBP, a partial built-to-suit development project it undertook in November 2006, attained 100 per cent pre-committed occupancy during construction. The development is expected to be completed next month.

Looking ahead, demand for industrial space is likely to remain healthy due to multi-national companies setting up facilities in Singapore and the spillover effect from tight office supply in the central business district, A-Reit said.

But anticipated high supply of 702,000 sq m of logistics and distribution space in the next two years is expected to dampen rents, it warned.

Positive Q2 results; price target increase t o S$3.31