A-Reit in development projects totalling $277m

ASCENDAS Real Estate Investment Trust (A-Reit) yesterday announced new investments for development projects at Changi Business Park and in Jurong totalling $277 million, including about 42,000 square metres of built-to-suit (BTS) business park space at Changi Business Park pre-committed to a ‘leading international financial institution’.

The trust did not identify the party but market watchers said that it may be Citibank.

Giving details of A-Reit’s new investments, the trust’s manager Ascendas-MGM Funds Management said that they include the development of Changi Business Park’s Plot 8 into three business park buildings – two BTS buildings and a multi-tenant block with an amenity podium. These buildings are on land of 29,864 sq m with 30 + 30 year tenure and will have a combined gross floor area of 74,660 sq m (803,633 sq ft).

The BTS portion pre-committed to the financial institution will be built in two phases, the first slated for completion in the first quarter of 2009 and the second in Q4 2010.

The multi-tenant building, with a gross floor area of about 33,000 sq m, will have about 6,000 sq m of amenity space to cater to the increasing population at Changi Business Park. The project is expected to be ready in second-half 2009.

The total cost for all phases of the development is $191 million.

Over at Pioneer Walk in Jurong, A-Reit will develop industrial space on a 36,600 sq m plot with a 30-year tenure.

On completion, the project will have 80,609 sq m of lettable floor area in two blocks of six-storey, ramp-up high-specification space.

Costing $86 million, the development will be built in two phases and is scheduled for completion in Q3-Q4 next year.

Eighty per cent or 28,376 sq m of phase 1 space has been pre-committed and 40 per cent or 18,396 sq m of phase 2 is under offer.

A-Reit also said yesterday that it renewed and signed new leases, including expansions, for a total net lettable area of 71,433 sq m in the quarter ended Sept 30. The overall portfolio occupancy rate increased to 98.3 per cent as at that same date, from 97.2 per cent a year earlier.

Secures new development projects

Two new development projects. A-REIT has committed to two development projects worth S$277m:

• two suburban business park facilities, including an amenity centre, at Plot 8 Changi Business Park to be completed in three phases; and
• an industrial facility at Pioneer Walk.

The built-to-suit portion at Changi Business Park of about 42,000sm is already pre-committed to a leading international financial institution.

Occupancy rate edges higher. A-REIT has renewed and signed new leases (including expansions) amounting to total net lettable area of 71,433sm for the September quarter. These leases represent 10.4% of the net lettable area for AREIT’s multi-tenanted buildings and generate annualised rental income of S$16.9m. A-REIT overall occupancy rate has increased to a high of 98.3% at Sep 07 compared to 97.2% last year. Occupancy rate for multi-tenanted buildings has also increased to 96.2% compared to 95.0% last year.

BUY
Current Price: S$2.42
Target Price: S$2.73

A-Reit plans US$180m developments

SINGAPORE – Singapore’s Ascendas Real Estate Investment Trust (A-Reit) will spend $270 million (US$180 million) building new business facilities in the next few months as it shifts focus to development rather than acquisitions, its chief said on Tuesday.

Chief executive officer Tan Ser Ping said A-Reit’s ability to create new assets would allow it to stay on track to reach a portfolio size of $5 billion by 2010, despite stiff competition for existing assets.

‘When there are good acquisition opportunities we will go for them. But if there are none, we’re not going to cry. There are other things to do,’ Mr Tan said in an interview.

A-Reit, Singapore’s third-largest property trust by market value, currently has a portfolio of 78 business and industrial properties – valued at US$3.3 billion as of end-June.

But unlike rivals such as Mapletree Logistics, Cambridge Industrial and MacathurCook Industrial who position themselves as Reits based on regional industrial assets, its assets are all located in Singapore.

Mr Tan said A-Reit would continue to focus on the republic for growth since including overseas assets in A-Reit’s portfolio would affect its cost of borrowing and change its risk profile.

The trust’s main shareholder, Singapore government-owned Ascendas, last month listed Ascendas India Trust, a business trust based on Indian business parks.

‘For markets such as India where you have the depth and width of potential, it’s better to have separate geographically focused vehicles,’ Mr Tan said. — REUTERS

Will it be the M&A aggressor?

DPU growth slowed on fewer acquisitions. Ascendas REIT (AREIT)reported its 1Q08 results with revenue rising 13.7% YoY and 4.5% QoQ to S$77.3m. Distribution per unit (DPU) was reported at 3.37cents, +9.1% YoY and only 2.1% QoQ, in line with our forecast of 3.35 cents. The marginal DPU growth is mainly attributed to the acquisition of 1 asset worth S$11.2m over the last quarter.

No guidance for acquisition in FY08. The key earnings driver for AREIT has been its aggressive strategy to acquire assets. AREIT acquired S$488m of assets in FY07, S$656m in FY06 and S$1,000m in FY05. AREIT has not given any guidance with respect to target acquisitions in FY08, but based on the already announced contracts and S&P agreements, it has a further S$148m to complete. This brings the YTD potential acquisition to only S$159.2m. For FY08, we forecast that it could potentially acquire
about S$300m-S$400m of assets.

Market competition is intensifying. The main reason is that the industrial market space is getting very crowded. There are presently four industrial REIT players in the market, i.e. AREIT, Mapletree Logistics Trust, Cambridge Industrial Trust and most recently MacarthurCook Industrial REIT (listed last quarter). Another industrial REIT i.e. JTC REIT will probably be listed over the next 12 to 18 months. More importantly, there is very little difference between these REITs as they all adopt the same acquisitionled growth strategy. And the implication is that growth for all the industrial REITs will get more and more difficult. The ability to grow notwithstanding, the market continues to expect these REITs to continue to grow rapidly as reflected by their respective Price to Book value of 1.4-2.0x. We see the
next leg of growth to likely come from M&A between the REITs. The key issue is who is likely to be the aggressor.

Maintain HOLD. The key worry for AREIT is its high Price/Book ratio of about 2.1x. More importantly with the industrial REIT space getting very crowded, we see a high risk of market being disappointed unless they are able to merge or acquire a competitor. Finally in terms of valuation, we have allowed for AREIT’s asset size to increase from its current S$3.3b to S$5.0bn over the next 2 years. On this target asset size basis, our fair value is S$2.63. We maintain our HOLD rating.

A-Reit’s distributable net income up in Q1

DPU of 3.37 cents, up 9.1%; net propery income climbs 15.8%

ASCENDAS Real Estate Investment Trust (A-Reit) has reported net income available for distribution of $44.7 million for its first quarter ended June 30, a 12.8 per cent year-on-year increase.It also said it will pay a distribution per unit (DPU) of 3.37 cents for the quarter on Aug 29, 9.1 per cent higher than for the previous corresponding quarter.

This also represents an annualised yield of 4.6 per cent based on the closing price of $2.94 per unit on June 29.

Reit manager Ascendas-MGM Funds Management’s CEO Tan Ser Ping said: ‘We are pleased to commence the new financial year with a sound first-quarter performance. On the back of the good economic performance and positive rental reversion from the existing portfolio, we achieved a commendable 15.8 per cent growth on our net property income compared to the prior corresponding period.’

Net property income for the quarter was $58 million.

New leases and expansion by existing tenants in A-Reit’s portfolio record a 57 per cent increase from a year ago resulting in an occupancy rate of 97.2 per cent, up from 96.1 per cent. Recent acquisitions include 1 Senoko Avenue for $11.2 million.

A-Reit is also undertaking the development of two projects: a partial build-to-suit business park property – HansaPoint @ CBP – at Changi Business Park and a partial build-to-suit distribution facility which is currently under development at Changi LogisPark.

An additional five-storey ramp-up warehouse is being added to Senkee Logistics Hub and it will be acquired for $63.8 million by A-Reit upon satisfaction of certain conditions.

A-Reit is also expected to acquire a logistic and distribution facility, currently being built by Goldin Enterprises Pte Ltd at Pioneer Walk for $22.5 million in the first half of 2008.

The Reit manager has renewed or leased a total of 82,763 sq m of space in the quarter. These leases represent an annualised rental income of $19.1 million. Total new leases for the period were 32,827 sq m, of which 44.4 per cent was in business and science parks, 13.7 per cent in hi-tech industrial properties and the remaining 41.9 per cent in two other asset classes – light industrial & flatted factories and logistics & distribution centres.