Suntec – DBSV
Executing AEI works
At a Glance
• Full year DPU was 7% above our forecast
• Half of office leases expiring this year have been renewed, likely see some positive rental reversion
• AEI at Suntec City commencing in June
• Maintain BUY and S$1.46 TP
Comment on Results
Slightly above expectations. 4Q11 gross revenue and NPI rose by 30.4% and 10.1% yoy to S$80m and S$52m respectively, largely due to the consolidation of revenue from Suntec Singapore. Additional contribution from Marina Bay Financial Centre (MBFC) Phase 1 also helped to lift distributable income by 23.1% to S$55.3m. DPU was 2.479Scts and full year DPU was 7% above our forecast. NAV rose by 10% as the trust took in a revaluation surplus of S$396m.
Office performance on track. The office space vacated by some of the tenants has been largely absorbed, hence pushing up overall portfolio office occupancy by 0.6ppt to 99.2%. On top of that, the trust has further renewed another 62,600 sf of FY12 office leases at an average of S$8.72 psf pm, a tad higher than last quarter’s S$8.41 psf. Hence, we expect to see some positive rental reversion given that some of these leases may have been signed in 2H 09 where monthly rents were S$7.1 –S$7.3 psf. The trust has only another 10.1% of leases in terms of NLA to renew in FY12.
AEI works at Suntec City will kick start in June. While we expect a further drop in occupancy from its current 97.5%, we believe that occupancy should not decline beyond 80% at any point in time as the works would be carried out in phases. Meanwhile, the trust has commenced the marketing of space ahead of CDL’s South Beach project, which is largely retail and hotel space.
Recommendation
Maintain BUY. Suntec offers FY12-13F DPU yields of 7.5%-7.6% and is trading at an undemanding at 0.6 x P/BV. Gearing has fallen from close to 40% a quarter ago to 38.5%. There is also minimum refinancing this year (7% of total debt). Our unchanged DCF-backed TP of S$1.46 offers a total return of 35%.
Office REITs – BT
Grade A office rents decline in Q42011 as office stock climbs
Micro-market’s occupancy rate falls below 90% for first time since Q3 2005
SINGAPORE’S office leasing market buckled in Q4 2011 under the stress of the heightened uncertainties and volatility arising from the debt crisis in the eurozone, said a new report from Colliers International.
According to the property firm, the average monthly gross rents for Grade A office space in the Raffles Place and New Downtown micro-market fell by 4.3 per cent to $10.31 per square foot per month (psf pm) in Q4 2011 – marking the first time rents fell quarter on quarter since the market bottomed out in Q4 2009.
The rental dip was in tandem with a fall in the micro-market’s occupancy rate to below 90 per cent for the first time since Q3 2005. Occupancy eased to 88 per cent from 90.9 per cent in Q3 2011.
Colliers said that the increase in office stock was not met with corresponding new occupier demand as many firms – including major financial institutions and accounting firms – turned cautious about their expansion plans. ‘The demand and supply equilibrium is further tipped with more office tenants relocating or locating some of their operations – including regional functions, back offices and business continuity premises – out of the central business district (CBD),’ noted Calvin Yeo, Colliers’ executive director of office services.
These moves are facilitated by the availability of compelling suburban options in the form of new office and business park developments, which have specifications and amenities similar to Grade A office buildings in the CBD, he added.
Rents in two other Grade A micro-markets also saw corrections in the final quarter of last year. Rents in the Marina and City Hall areas retreated by 2.3 per cent from the previous quarter, while those in Beach Road edged down by 0.8 per cent.
On the whole, average CBD Grade A office rents fell by 1.6 per cent in Q4 2011 to $8.93 psf pm by end-December 2011.
However, Colliers noted that the sales market stirred, underpinned by new launches of strata-titled office projects and the continued low interest rate environment.
Healthy buying momentum in the sales market enabled capital values to hold stable in Q4 2011, despite the softening rental market.
The average capital value of Grade A office space in the Raffles Place and New Downtown micro-market was $2,459 psf in Q4 2011, relatively unchanged from the $2,460 psf recorded in Q3.
However, it is still some 12.6 per cent below its previous peak of $2,814 sq ft in Q3 2008.
For the whole of 2011, the average capital value of Grade A office space in the Raffles Place and New Downtown micro-market grew by a total of 17.8 per cent. Looking ahead, Colliers expects rents to dip further as a large pipeline of around 11 million sq ft of office space is set to come on stream from 2012 to 2016.
‘The large pipeline of office space supply coming on stream from 2012 to 2016 is of concern,’ said Colliers’ director of research & advisory Chia Siew Chuin.
‘The future supply of islandwide office space is forecast to amount to close to 11 million sq ft, which translates to an average 2.2 million sq ft per annum.’
Suntec – BT
Suntec Reit Q4 DPU rises 7%, beating forecast
Full-year DPU up 0.7%; gross revenue jumps 30.4%
SUNTEC Real Estate Investment Trust (Suntec Reit) reported a distribution per unit (DPU) of 2.479 cents for the fourth quarter ended Dec 31, 2011, up 7 per cent year on year, and 19.9 per cent higher than its forecast.
This brings its DPU for 2011 to 9.932 cents, a 0.7 per cent increase from 2010 and beating forecast by 14.2 per cent.
Income available for distribution for the quarter exceeded its forecast by 20.7 per cent and stood at $55.3 million – a 23.1 per cent increase from the corresponding period a year ago.
For the year, Suntec Reit posted a record-high income available for distribution of $220.7 million, 20.9 per cent higher than 2010’s $182.5 million.
Said Yeo See Kiat, chief executive officer of ARA Trust Management (Suntec) Ltd, Suntec Reit’s manager: ‘I am happy to report that we have delivered a record high distribution income for FY 2011, despite the negative rental reversions in our office portfolio during the year. This was achieved on the back of strong performance from Marina Bay Financial Centre properties as well as prudent capital management that led to greater interest savings.’
Gross revenue for the quarter was $80 million, an increase of 30.4 per cent over Q4 2010, and 33.5 per cent higher than its forecast. This was mainly due to the consolidation of Suntec Singapore’s revenue following the acquisition of an additional 40.8 per cent effective interest in August 2011.
Excluding Suntec Singapore’s revenue contribution of $20 million, however, the gross revenue for Q4 2011 was $60.1 million – 2.1 per cent lower than the same period the year before, due to a decline in retail and office revenues.
Gross revenue for the year stood at $270.3 million, up 8.3 per cent from 2010’s $249.5 million.
Net property income for the quarter rose 10.1 per cent year on year to $52 million, while for the full year, this was up 0.2 per cent at $193.4 million.
As at Dec 31, 2011, the overall committed occupancy for Suntec Reit’s office and retail portfolio stood at 99.2 per cent and 97.5 per cent respectively.
Commenting on Suntec Reit’s office portfolio, Mr Yeo said: ‘In view of the current euro crisis and the uncertain economic outlook in 2012, we stepped up our proactive leasing strategy and forward renewed more than 233,000 sq ft of our leases due to expire in 2012.’
‘With a balance of approximately 10 per cent of our leases due to expire in 2012, we are well positioned to meet the challenges ahead,’ he added.
Looking ahead, Suntec Reit’s manager said that an estimated 1.3 million sq ft of office space is expected to enter the market this year – 50 per cent lower than the new supply in 2011.
‘However, overall Grade A rents and demand are expected to be muted in 2012, as companies remain conservative and hold off possible expansion plans or reconfigure offices to sub-let excess space,’ it added.
Suntec Reit units closed half a cent lower yesterday at $1.145.
ART – BT
One-off events pull down Ascott Trust DPU
Q4 payout is 1.83 cents; full-year payout up 13 per cent to 8.53 cents
DISTRIBUTION per unit for the fourth quarter at Ascott Residence Trust has fallen 15 per cent from a year ago and is 8 per cent below the trust manager’s forecast, due to costs incurred for one-off events in the quarter.
For the current year, ‘we expect operating performance of our properties to improve over 2011 based on source currency’, said Ascott Residence Trust Management Ltd CEO Chong Kee Hiong. However, this is likely to be offset by an estimated 50 basis point increase in interest expense in 2012.
What will be critical to the trust’s bottom line this year will be movements between the Singapore dollar and three currencies – the Vietnamese dong, the euro and the pound. Income received in these currencies account for about 60 per cent of ART’s gross profit on an annual basis.
When asked about the likelihood of ART making acquisitions, Mr Chong said that generally, buyers and sellers are likely to adopt a wait-and-see attitude in the first half due to market uncertainty. ‘Deals are more likely in the second half.’
DPU for the three months ended Dec 31, 2011 fell 15 per cent year on year to 1.83 cents. The latest quarter’s DPU was also 8 per cent lower than the 1.99 cents that ARTML had forecast in an offer information statement dated Sept 13, 2010.
This is due to costs incurred for one-off events in Q4 2011, including a $2.1 million provision for licensing-related matters for a service residence in China, about $500,000 for setting up a US$2 billion euro-medium term note programme to tap an enlarged pool of investors, and loan-related expenses and cash holding costs of $800,000 in conjunction with raising $250 million from the trust’s existing medium term note programme to refinance secured borrowings due in 2012, extend loan tenure and free up encumbered assets for greater financial flexibility.
‘This has resulted in a stronger balance sheet with reduced debt refinancing exposure in 2012, and a healthy debt maturity of more than three years with close to four times interest cover,’ said Mr Chong.
Excluding the above one-off cost items, the Q4 2011 unitholders’ distribution would have been $24 million (matching Q4 2010’s $23.9 million), instead of $20.6 million. ARTML’s forecast for Q4 2011 was $22.5 million.
The trust, which makes semi-annual payouts, will distribute 4.063 cents per unit for the July 1-Dec 31 2011 period. In the stock market yesterday, the counter closed unchanged at $1.005.
ART’s full-year 2011 DPU payout of 8.53 cents, which is up 13 per cent from 2010, represents 100 per cent of distributable income. The FY2011 DPU is 10 per cent above forecast.
Revenue for Q4 2011 rose 3 per cent year on year to $75.3 million. Revenue per available unit per day too improved 7 per cent to $146 – largely on the back of stronger performance from the group’s service residences in the UK, Singapore and Indonesia. The two figures also exceeded forecast by 2 per cent and 6 per cent respectively.
Full-year revenue rose 39 per cent to $288.7 million, while gross profit surged 55 per cent to $157.5 million. This was due largely to additional contribution from the 28 service residences acquired on Oct 1, 2010, partly offset by divestment of Ascott Beijing and Country Woods in Jakarta. On a same store basis, FY2011 revenue increased by 1.8 per cent to $165.3 million, and gross profit climbed 4 per cent to $81.1 million, led by Singapore service residences.
Unitholders’ distribution climbed 67 per cent to $96.2 million for FY2011.
ART has 65 properties with 6,600 units in 23 cities across 12 countries in the Asia-Pacific and Europe.
‘We will continue to implement asset enhancement initiatives to increase the returns of our portfolio. Operating performance of London properties is expected to be boosted by the completion of the renovation of Citadines Prestige Trafalgar Square and the upcoming London Olympics 2012,’ ARTML said in its results statement.
MLT – BT
MapletreeLog DPU rises 9.7% in Q4
MAPLETREE Logistics Trust (MLT) saw distributable income increase 12.2 per cent to $41.3 million for the fourth quarter ended Dec 31, 2011, from $36.8 million the year before.
However, distribution per unit (DPU) grew at a slower rate due to a larger number of units from an equity fund-raising exercise back in Q2 2010. Q4 distribution per unit (DPU) was 1.70 cents, 9.7 per cent higher than last year’s 1.55 cents. The Q4 DPU includes a distribution of 0.03 cent from divestment gains.
Its Q4 gross revenue climbed 17.8 per cent year-on-year to $71.9 million in the quarter ended Dec 31, mainly due to contributions from four properties acquired in the financial year and stronger contributions from existing assets on the back of positive rental reversions and improved occupancies.
With a larger asset base and a greater number of multi-tenanted properties, property expenses also climbed 43.9 per cent to $10.3 million from $7.2 million previously.
Consequently, MLT’s net property income for the period grew 14.4 per cent to $61.6 million.
On a year-to-date basis, MLT’s gross revenue grew 22.6 per cent to $268.3 million from $218.9 million a year back, largely due to contributions from 14 properties acquired back in FY2010, in addition to four other assets acquired in FY2011.
Not surprisingly, borrowing costs also rose by $5.4 million due to funds required for acquisition activities.
This resulted in the total amount distributable increasing by 21.9 per cent to $158.6 million compared to $130.1 million last year.
This translates to a DPU of 6.54 cents – including 0.06 cent for the period from the divestment gains of 9 Tampines and 39 Tampines.
Gearing-wise, aggregate leverage as at end last year was about 41 per cent, largely unchanged from the prior quarter, and with ‘little refinancing risk’ this year, said management.
Overall portfolio occupancy also remained at a healthy 98.8 per cent while the weighted average lease to expiry was around six years, implying stable cash flows and regular income streams in the periods ahead.
MLT invests in a portfolio of income producing logistics real estate assets which encompasses 98 properties valued at a book value exceeding $3.7 billion as at Dec 31.
Yesterday, the counter closed 1.5 cents, or 1.7 per cent, lower at 86 cents.
During a teleconference yesterday evening, cost was noted to be a key challenge going forward, especially in countries such as China due to rising wage levels.
However, with a continued focus on ‘yield optimisation by active asset and lease management’, Richard Lai, chief executive officer of the manager, remains confident that MLT will continue to deliver decent returns.
On the acquisitions end, Mr Lai noted that they are ‘not rushing’ into any particular deal and will maintained a ‘disciplined approach’.