A-REIT – CIMB
Intact for the year
• Results in line; maintain Neutral. 1HFY11 results met Street and our expectations. DPU of 6.67cts forms 47% of our full-year forecast of 14.2cts. If retained income of S$3.5m (pending approval for tax-transparency treatment) had been distributed, available DPU would have been 6.86cts. We add in S$97m of asset enhancement initiatives (AEI) as announced and lower our cost-of-debt assumptions. Our DPU estimates increase by 1-4% for FY11-13. We roll over our DDM target price to CY11, raising it to S$2.13 (from S$2.02) with an unchanged discount rate of 8.4%. We expect weakening occupancy rates to be compensated by higher yields after AEI and build-to-suit opportunities. Despite a still attractive yield of 6.8%, we believe its management premium and track record have been priced in, at a 34% premium to book value, particularly given still-weakening occupancy. Re-rating catalysts could include announcements of accretive acquisitions and development projects.
• Weaker qoq, with more conversions to multi-user buildings. Net property income of S$83.9m for 2QFY11 was down 3.9% qoq as property expenses increased with more single-user buildings (where tenants usually bear most property-related expenses) converted to multi-user facilities. Weakening occupancy despite positive macros is in line with our view of a lag time between the two. Buildings converted in the quarter included 12 Woodlands Loop, 3 Tai Seng Drive and 53 Serangoon North Ave 4.
• S$97m worth of new AEI at 8.5% yields. Management announced new AEI, totalling S$97m, which would reposition 1 Senoko Avenue, Techview and 10 Toh Guan Road for higher-value use. 1 Senoko Avenue would be redeveloped into a dedicated food hub with additional GFA of 34,519 sq m. Techview would be repositioned to court hi-tech users rather than manufacturing users which it used to house. Finally, 10 Toh Guan Road (previously occupied by TT International), would try to attract hi-tech users rather than its current logistics users. While regulatory approval is pending for Techview and 10 Toh Guan Road, management anticipates the three new projects to fetch an estimated weighted yield in excess of 8.5%, above its FY10 portfolio NPI yield of 7.3%.
A-REIT – DBSV
AEI to optimize yields
• Positive leasing efforts to boost occupancy levels in coming quarters
• S$97m enhancement works underpin earnings growth in longer term
• Maintain HOLD and raised TP to S$2.19 as we roll forward valuation to FY12.
DPU of 3.3Scts in line. A-REIT reported higher topline and net property income of S$111.1m (+8.6% yoy, -4.0%qoq) and S$83.9m (+3.5% yoy, -4% qoq) respectively, helped by contributions from completed development projects and acquisitions. Performance on a sequential basis was slightly lower due to a one-off gain reported in 1Q11. Distributable income in 2Q11 was S$63.1m (+2.5%yoy) but retained S$1.4m pending tax clearance from the authorities. DPU of 3.3 Scts was 5.2% lower due to a larger unit base but will have been 0.3% higher on a pro-forma basis.
Stable portfolio occupancy of 95.3%, expected to improve come 3Q11. While A-REIT multi-tenanted buildings have seen slight decline in average occupancy levels in recent quarters, we expect a rebound come 3Q11 due to positive results from newly secured leases from the manager’s active releasing efforts (estimated to increase by 1% qoq).
S$97m planned for enhancement works (“AEI”) to underpin higher asset yields in medium term. Plans include major construction works to increase the properties’ average net lettable area as well as refurbishment & repositioning of the properties for higher value use. The manager targets a weighted average return of 8.5% from these AEI plans when completed from 1Q12 onwards.
HOLD call maintained, TP S$2.19. We lowered our FY11-12 earnings by 2% as we adjust our revenue recognition from the above AEI works. TP is raised to S$2.19 as we roll forward our valuation to FY12. However, given limited upside from current level, we maintain our HOLD call. A-REIT currently offers a prospective FY11-12 yield of 6.4-6.7%.
K-REIT – DBSV
Results in line
• 3Q10 distribution income up marginally 3.2% qoq, in line
• Revenue is likely to see limited near term upside
• Maintain Hold with TP S$1.20
In-line set of results. Kreit reported a marginal 6.3% qoq decline in topline to $21.8m in 3Q10, mainly due to a correction to the straight-line accounting of rental income reported in 2Q10 from the 50% stake in 275 George Street, while NPI dipped a smaller 4.8% to $17.5m on lower property expenses. However, the adjustment had no impact on the distributable income, which rose by a modest 3.2% to $22.7m (DPU: 1.69cts). The increase in distributable income was largely due to lower borrowing costs of 3.4% (vs 3.54% in Q2). Occupancy rate increased by a slight 1.3ppt qoq to 99.2% with an additional 29100sf of new take up.
Limited upside in the near term. Its portfolio is running at almost full capacity, and there is limited rental reversion upside as most of the leases up for renewal would be inked at the peak in 2007. However, downside risks are now capped as demand improved. As highlighted in our previous report, we view the purchase of MBFC1 and sale of KTGE as a longer term positive for the Reit. The acquisition will upgrade its portfolio quality and extend the average portfolio lease expiry profile from the present 5.7 years to 7.8 years, although near term income boost would be relatively small. In their 2011 forecast, the group has indicated a net 5.3% rise in distribution income and 4% better DPU impact from the purchase of MBFC1 and sale of KTGE. Post acquisition, Kreit’s gearing would rise to 39.1%.
Maintain Hold. Although we see limited revenue upside in the near term, the improving office rental and capital value cycle is likely to benefit the group’s underlying rental and asset value in the medium term. This will underpin Kreit’s income. Maintain Hold and DCF-backed TP of $1.20.
K-Green – BT
K-Green Trust posts $4.4m profit in Q3
K-GREEN Trust posted a third-quarter net profit of $4.4 million yesterday. Because the business trust was listed on the Singapore Exchange on June 29, the group also reported its net profit thus far (June 29-Sept 30), which stood at $4.57 million, 26.5 per cent higher than a pro-rated forecast of $3.61 million.
Revenue for June 29-Sept 30 was $26.5 million, 17.1 per cent lower than projected. ‘This was mainly due to a shift in schedule of the flue gas upgrading works for Senoko Plant, leading to lower recognition of EPC revenue by $6.3 million,’ said K-Green. Construction expense was correspondingly also lower than projected. Also lower than forecast were trust and ‘other operating’ expenses.
For the third quarter, K-Green recorded revenues of $26.1 million. This comprised construction revenue of $10 million, finance income of $4.65 million and operation and maintenance income of $11.45 million.
The group, whose objective is to invest in ‘green’ infrastructure assets, currently holds three plants – the Senoko Waste-to-Energy (WTE) Plant, the Keppel Seghers Tuas WTE Plant and the Ulu Pandan NEWater Plant. Keppel intends to add other assets to the trust.
Earnings per share for K-Green for the third quarter was 0.7 cent. EPS from its date of listing to Sept 30 was 0.73 cent.
K-Green’s shareholders are mostly entitled Keppel Corporation shareholders, who received one K-Green unit with an implied value of $1.13 for every five Keppel shares held. K-Green’s shares represent a part of Keppel’s proposed dividend in specie of 61 cents for FY2009. The distributed K-Green units represent 51 per cent of the trust’s units. K-Green’s sponsor, Keppel Integrated Engineering Limited, owns 49 per cent of the units.
Net asset value per unit as at Sept 30 was $1.15. K-Green units gained one cent to close at $1.10 yesterday.
A-REIT – BT
A-Reit’s $97m plan to enhance 3 properties
ASCENDAS Real Estate Investment Trust (A-Reit) will be investing an estimated $97 million to enhance three properties in its portfolio.
The business space and industrial Reit said this yesterday as it released results for the second quarter ended Sept 30.
A-Reit’s net property income in Q2 was $83.9 million, up 3.5 per cent from a year ago. Acquisitions and the completion of development projects contributed to the improvement.
Distributable income rose 0.4 per cent to $61.8 million. Distribution per unit (DPU) was 3.3 cents – 5.2 per cent lower than the 3.48 cents a year ago.
Adjusting for units issued for a placement exercise and for the payment of a base management fee and an acquisition fee, the proforma DPU last year would have been 3.29 cents – leading to a 0.3 per cent growth this year.
Tan Ser Ping, CEO and executive director of A-Reit’s manager, said that the manager has identified three asset enhancement opportunities ‘to capitalise on under-utilised plot ratio or to enhance the attractiveness of the properties’.
One of the largest projects involves the redevelopment of 1 Senoko Avenue for $59 million. A-Reit is raising the site’s plot ratio to 2.5 from 0.6, creating an additional 34,519 sq metres of gross floor area. The property will be positioned as a ‘food hub’ for the food and beverage industry when works are completed in Q4 FY2011/12.
A-Reit is also seeking regulatory approval for a $33.7 million enhancement of 10 Toh Guan Road. Plans include the creation of more parking facilities and the improvement of the building’s exterior facade.
In addition, A-Reit will be spending $4.3 million to create a courtyard on the upper floors of Techview at Kaki Bukit.
A-Reit expects these projects to deliver a weighted average yield exceeding 8.5 per cent.
Portfolio occupancy slipped in Q2 to 95.3 per cent from 96.8 per cent a year ago. But on the bright side, A-Reit managed to secure a larger lease commitment from Citibank for a facility in Changi Business Park – the bank will be leasing the entire building, up from 50 per cent of it.
For the half year, A-Reit’s net property income rose 5.8 per cent year on year to $171.3 million. Distributable income inched up 1.9 per cent to $124.9 million.
A-Reit closed one cent up yesterday at $2.11.