Category: A-REIT
AREIT – UOBKH
1Q08: Good Start For The Financial Year
1Q08 NPI increase 15.8% yoy, DPU up 9.1% yoy. A-REIT’S net property income of S$58.0m and net profit S$42.7m reflects a 15.8% and 12.7% increase yoy respectively. The increase in rental income was a result of new leases and expansion by existing tenants which recorded a 57% yoy increase. DPU rose 9.1% from 3.09 Scts in 1Q07 to 3.37 Scts (6.79 Scts on an annualised basis). Overall occupancy was at 97.2% in 1Q08 compared to 96.1% 1Q07
Acquisitions continued to be focal point. Currently, A-REIT has a portfolio of 78 properties with a total book value of S$3.3b. In 1Q08, they acquired 1 Senoko Avenue. Currently, two development projects (HansaPoint @CBP and Zuellig Pharma) and two acquisitions of properties under construction (SENKEE Logistics Hub and Goldin) worth a total of S$148m are pending completion. Going forward, we believe acquisitions will continue to be the strategy for AREIT, although we note that the rate of acquisitions has slowed down in the last quarter.
Rental reversions and rising rental rates still key growth driver. A-REIT has successfully renewed or leased a total of 82,763 sqm of space in the last quarter. New demand for multi-tenanted buildings grew by 57% to 23,234 sqm compared to 14,754 sqm a year ago, out of which 21.5% and 19.3% were in the Business & Science Park Segment and the Hi-Tech segment respectively. We believe that A-REIT’s total 44.3% portfolio of high growth segments will continue to be a key beneficiary of the spillover from office demand for the next 2-3 years.
Re-iterate BUY, target price at S$3.13. We re-iterate BUY call on A-REIT with a target price of S$3.13, based on our DCF valuation which assumes a WACC of 5.62% derived from a market risk premium of 6.5% and beta of 0.75, and terminal growth rate of 1.5%. We also factored in acquisitions of S$400m-700m p.a. over the next few years.
AREIT – DBS
Riding on industrial growth
1QFY08 results. Gross revenue and net income available for distribution grew 14% and 13% y-o-y to S$77.3m and S$44.7m respectively. This improvement was mainly due to additional rental income from completed acquisitions. Distribution per unit grew 9% y-o-y to 3.37 cents.
Continued growth in industrial rent. According to CBRE, the average rent for all industrial space increased in the second quarter of 2007. Hi-Tech industrial properties led the growth, recognising an increase of 11.9% q-o-q. With rising office rents and supply of office space remaining tight, the demand for high-end quality business space is expected to be strong. Therefore, we remain optimistic on the outlook for High-Tech industrial space and Business and Science Parks, of which A-REIT has a total exposure of 45% (by portfolio value).
JTC’s plan revealed. JTC announced its plan to divest property worth between S$1.4bn and S$1.6bn. At least half of the industrial assets would be placed in a trust (expected to be set up in 2Q2008) that will be listed on the SGX. However, we note that the potential acquisition pipeline coming from its sponsor, Ascendas Land (Singapore) Pte Ltd (Ascendas), is still strong.
Maintain Buy with raised target price of S$3.16. Moving forward, in view of higher rental reversions, we have increased our DPU forecasts. DPU forecast for FY08 and FY09 increased by 4% and 9% respectively. Hence, this has raised our target price to S$3.16 based on DCF valuation, which incorporates an acquisition pipeline of S$400m p.a. till 2010. With a total return, including yield, of 11%, we are maintaining
our Buy recommendation.
REITs – UOBKH
We compare Singapore REITs (S-REITs) with other Asian REITs to source for its comparative attractiveness.
Falling yield premiums. We observe that yield premiums across Asia has generally fallen. However, as we note that investors are not just looking for yields but also higher capital gains, mentioned in our last ‘Office REITs – Season For Picking’ report, Singapore still looks attractive in terms of risk-returns. Yield premiums of Malaysia REITs (M-REITs) have negated, while that of Japan REITs (J-REITs) looks relatively attractive at 0.96% considering that it is a matured market. S-REITs are currently trading at a yield premium of 0.35%. It is also interesting to note that HK-REITs have a very high average ROE of 10.1% while PB is only 0.95.
S-REITs still look attractive in terms of PB vs ROE. Compared to its Asian REITs market peers S-REITs still looks attractive in terms of its price-to-book vs its ROE, especially so as S-REITs consists of high quality REITs. Amongst the S-REITs, we like CCT (Target price: S$3.72), K-REIT (Target price: S$3.39), and A-REIT (Target price: S$3.13).
Click on the Figure Above for a bigger view
A-REIT : UOBKH
Quasi-Office Play
Ascendas Real Estate Investment Trust (A-REIT) is our top pick in the industrial segment in view of its quasi-office play. With industrial rents being significantly lower than office rents, A-REIT’s high-growth assets (business parks and hi-tech industrial space) are quality alternative solutions for limited office space.
Key beneficiary of strong spillover from office demand. A-REIT’s portfolio, with business & science parks making up 20.1% and hi-tech industrial space 24.2%, is valued at more than S$1.4b. This makes A-REIT a key beneficiary of the spillover from office demand for the next 2-3 years. Also, most leases in the business & science parks (73.9%) and hi-tech industrial (64.6%) segments are on a short-term basis, so A-REIT can ride on the upward rental reversions.
Acquisitions still the key driver. A-REIT’s aggressive acquisition trail will be the key growth driver. A-REIT is on track to reach its target of S$5b worth of investment properties by end-2010. Although management plans to focus on the domestic market in the short term, it can also tap on parent Ascendas’ operational experience in India and China for overseas exposure in the longer term. A-REIT will be a likely exit option for properties under the various funds in which Ascendas has a stake, including Ascendas India Development Trust and Ascendas India IT Parks Fund. Management estimates every S$100m worth of acquisitions at the current capitalisation rates would translate into a 10-cent rise in DPU.
Development projects to lift yields. In 2006, A-REIT pioneered two warehouse-retail developments: Courts Megastore and Giant Hypermart. Such development projects could lift yields by 1.5-2% and double the DPU of acquisition projects, although with a longer time lag. The company is also undertaking other development projects, namely HansaPoint @ Changi Business Park, Zuellig Pharma and Goldin.
Re-iterate BUY, revised target price: S$3.13. Based on our new WACC assumptions, we re-iterate BUY and revise our target price from the previous S$2.87 to S$3.13, implying an upside of 11.1% and total return of 17.6%. Other earnings surprises could come from asset-enhancement activities to maximise plot ratio and occupancy rate improvements.
A-REIT : UOBKayHian
BACKGROUND
Ascendas Real Estate Investment Trust (A-REIT) is the largest industrial REIT in Singapore in terms of market capitalisation and portfolio size, with exposure to Singapore alone. It has some of the best attributes among Singapore REITs: strong parental support, solid track record and execution capabilities, quality tenant profile, and a large and diversified portfolio. AREIT posted good FY07 results, with net distributable income up 14.9% yoy to S$163.8m, translating into a DPU of 12.75 cents. Portfolio occupancy also hit a high of 96.6% vs 95.0% in FY06.
OUTLOOK/RECOMMENDATION