A-REIT – DBSV
Firm occupancy levels
• Steady DPU of 3.29 Scts on the back of sustained high occupancy levels of 95.6%.
• New BTS project announced to underpin longer term earnings growth.
• Maintain HOLD, TP S$2.19 offers total return of 6%
3Q11 DPU of 3.29 Scts in line with estimates. Higher topline and net property income of S$ 109.9m (+3.7% yoy) and S$83.0m (+2.0% yoy) respectively were largely from rental income of new properties since Dec 2009, while rental rates remain firm. NPI margins remained stable at c75%. Operationally, average occupancy levels inched up qoq to 95.6% (vs 95.3% in 2Q11) as the manager continues to see expansionary demand on the ground.
Spending S$35.9m on new build-to-suit (“BTS”) project. AREIT continues to display solid execution in its BTS projects with Phase 2 plot 8 Changi Business Park completed on schedule (100% commitment from Citibank) and also reported a revaluation gain of 123%. Next on the plate is the construction of a BTS logistic facility for a multi-national company end-user, which A-REIT secured a 10-year long lease upon completion, thus further improving the REIT’s long term earnings stability and visibility. We are not adjusting our estimates as we have previously assumed S$150m acquisitions /BTS projects in our numbers.
Strong balance sheet – Debt headroom of up to S$931m at 45% leverage level. Currently geared at 34.7%, A-REIT is empowered with S$931m headroom (till 45% gearing level) for further investment opportunities, which the manager remains on the lookout.
HOLD, TP S$2.19 maintained. A-REIT currently trades at 1.4x P/BV and offers FY11-12F yield of 6.2%-6.4%, which is a fair 340-360 bps above the 10-year bond yield and in line with its historical mean trading levels. Our HOLD call is maintained given limited price upside to our target objective.
A-REIT – BT
A-Reit gross revenue in Q3 up 3.7% to $109m
ASCENDAS Real Estate Investment Trust (A-Reit) yesterday posted gross revenue of $109 million for the third quarter ended Dec 31, 2010.
This is 3.7 per cent higher than a year ago, as completed investments brought in additional rental income.
On the back of this, net property income rose 2 per cent to $83 million.
Operating expenses were higher as A-Reit’s portfolio grew, and as the government stopped granting land rent and property tax rebates.
Distributable income inched up 0.8 per cent to $61.7 million.
Distribution per unit (DPU) for the quarter rose 0.6 per cent to 3.29 cents.
For the nine months ended Dec 31, DPU was 9.96 cents, down 4 per cent from 10.37 cents a year ago.
The unit base had expanded, partly from a placement exercise in August 2009.
On a proforma basis, the nine-month DPU last year would have been 9.81 cents, translating to 1.5 per cent year-on-year growth.
A-Reit completed Phase 2 of Plot 8 Changi Business Park in December last year, achieving a revaluation gain of around $42.9 million.
Citibank will be leasing the entire property, and the lease will start progressively from February.
Work on A-Reit’s eleventh development project, a built-to-suit logistics facility next to the Airport Logistics Park of Singapore, has begun.
The estimated development cost is $35.9 million, and the project should be completed in the fourth quarter of FY2011/12.
A multinational company has committed to leasing the entire facility for an initial tenure of 10 years.
As at Dec 31, A-Reit’s portfolio occupancy rate was 95.6 per cent, up from 95.3 per cent the previous quarter.
Its aggregate leverage was 34.7 per cent. It has a debt headroom of $931 million before leverage hits 45 per cent.
A-Reit has about $457 million of debt maturing this year, and it said it is in the process of refinancing it.
The counter lost two cents yesterday to close at $2.16.
Sabana REIT – UOBKH
Largest Shari’ah-Certified REIT Globally
Sabana Shari’ah Compliant REIT (Sabana REIT) is a Singapore-based industrial REIT established to invest in industrial properties across Asia. It is the first fully certified Shari’ah-compliant S-REIT in Singapore and possibly the largest Shari’ah certified REIT globally. Its portfolio comprises 15 industrial properties spread across Singapore, with an aggregate GFA of about 3.29m sf.
Initiate with BUY. We initiate coverage on Sabana REIT with BUY and a target price of S$1.20 based on the dividend discount model with a required rate of return of 8% and a terminal growth rate of 2%.
Early-mover advantage to tap larger base of Islamic funds and investors. Sabana REIT is the first fully Shari’ah-certified REIT in Singapore and we believe it is the world’s largest Shari’ah-certified REIT. The REIT is also compliant with Middle Eastern standards for Shari’ah instruments and will be able to access the estimated US$1trillion Islamic financial market.
Above-average dividend yield of 8.9%. We forecast Sabana REIT will have 2011 dividend yield of 8.9%. This is 100bps higher than the average FY11 dividend yield of 7.9% for industrial S-REITs and higher than the 8.4% and 6.9% FY11 trading yields for the 2010-listed Cache Logistics Trust and Mapletree Industrial Trust respectively.
Quasi office and specialised storage play. About 59% of the portfolio comprises high-tech industrial properties, which represent a late-cycle play on the office segment as high-tech industrial space acts as an alternative to office space when office rentals start to rise. About 17% of the portfolio is concentrated in the chemical logistics space, which is a highly specialised and regulated field. In our opinion, the focused nature of high-tech and chemical warehousing properties that account for about 75% of the portfolio would result in sticky tenants.
Leasing structure provides downside protection. The triple-net master-lease structure of Sabana REIT will reduce income volatility and protect the portfolio from underlying vacancies. The tenant profile of Sabana REIT consists of 14 tenants with master-leases and one multi-tenanted facility with rental protection.
FCT – OCBC
New supply to cap suburban mall rentals
Performance in FY2010. Frasers Centrepoint Trust (FCT) made an total DPU of 8.2 S-cents1, for the period from 1 Oct 2009 to 30 Sep 2010, with an average DPU yield of 6.15%2. At yesterday’s closing price, its share price has also appreciated 9.89% YoY (with the low of S$1.26 on 26 May and a high of S$1.58 on 23 Sep). It also completed the acquisition of Northpoint 2 & Yewtee Point in Feb 2010, which is financed 62% by private placement of new units (S$177.8m) and 38% by internal working capital and a draw down of an aggregate S$110m from facilities made available by financial institutions.
Prime and Suburban rents narrowing. According to CBRE, suburban retail rents averaged $29.10 psf/month in 4Q10, reflecting a rental increase of 2.8% YoY and 0.34% QoQ. This is the only segment of the retail sector that showed a rental gain, proving the resilience of the suburban areas, underpinned by catchment demand. In contrast, the monthly rents for Orchard Road softened 2.6% QoQ to average $30.20 psf in 4Q10. On a YoY basis, Orchard rents fell 6.6% from the $32.40 psf in Q4 2009, as malls adjusted to the new supply. The narrowing gap between Suburban and Prime Orchard rents was most prominent in 2010. In Q1 2010, the difference was 12.6%. It narrowed to a mere 3.6% gap in Q4 2010.
New supply to cap suburban rentals. According to our estimates, another 1.62m sqft of retail space will be added in 2011-2012. This is expected to depress rental growth at the neighbourhood malls. In fact, CBRE estimated that suburban rents are likely to see a maximum 3% upside in 2011 as tenant’s resistance sets in. FCT, with its 100% exposure to suburban malls, is likely to be affected. Moreover, with only four local malls under its asset portfolio (Causeway Point, Northpoint, Anchorpoint, Yewtee Point), there is a limit to how much further it can scale, compared to CapitaMall Trust – the largest retail REIT which has 15 malls under its belt. We continue to like FCT because of its pure suburban positioning but we maintain our HOLD rating, with a revised fair value of S$1.58, on rental cap and valuation grounds. FCT continues to trade at a tight FY11F yield of 5.4%, and at a 17% premium to book value. Further re-rating catalyst, in our view, would stem from the manager announcing further acquisitions or development projects opportunities.
1 Computed based on summing the quarterly DPUs and Advanced DPU.
2 Computed based on total DPU divided by average closing price from 1 Oct 2009 to 30 Sep 2010
StarHill Global – Kim Eng
Luxe at a bargain
Event
• Rental rates of prime retail space along Orchard Road have remained firm and look set to climb amid a rosy economic outlook and in the absence of new supply over the next two years. Starhill, which derives two‐thirds of its revenue from Ngee Ann City and Wisma Atria in Orchard Road, is poised to enjoy positive rental reversions. We reiterate our BUY recommendation and target price of $0.80.
Our View
• Approximately 20% of Starhill’s retail leases in Singapore will expire this year. We estimate that the current passing rent of its expiring leases is about 30% below the prime retail space rent in Orchard as of 4Q10. With prime retail rents heading north and no new supply in sight, we have factored in positive rental reversions over the next two years.
• Suburban retail rents, on the other hand, may come under pressure as 1.3m sq ft of new retail supply come to the market in the next two years. This includes Clementi Mall (193,750 sq ft), JCube (204,000 sq ft) and Changi City Point (207,000 sq ft). That prime retail rents may increase and suburban retail rents may get squeezed indicates that the gap between the two could start to widen from the current narrow band.
Starhill, with its value proposition as an undervalued prime retail REIT, should benefit.
• With suburban retail REITs like Frasers Centrepoint Trust and CapitaMall Trust trading at a premium of 20‐30% to their book value, Starhill appears to be a good bargain at just 0.7x P/NAV.
Action & Recommendation
We reiterate our BUY rating and target price of $0.80, based on an attractive forward DPU yield of 6.7%. Starhill will continue to enjoy stable rental income from its overseas assets thanks to the long‐term leases. Acquisitions and asset enhancements could be the major catalysts for re‐rating.