A-REIT – DBSV
Strength in diversity
At a Glance
• DPU of 3.37 Scts in line with expectations and a good start for the year
• Portfolio occupancy remains stable at 95.1%
• BUY, TP S$2.11 offers a total return of 12%, backed by resilient yields of 6.9-7.2%.
Comment on Results
Resilient set of 1Q11 results. 1Q11 DPU of 3.37 Scts was in line with our expectations. Gross revenues and net property income improved to S$113.6m (+11% y-o-y) and S$87.3m (+8% y-o-y) respectively, mainly due to contributions from recently completed acquisitions & development projects. Distributable income came in at S$65.3m (7% y-o-y) but retained S$2.2m pending tax clearance from the authorities; DPU was 7% lower yoy due to a large unit base (but would be +3% yoy on a proforma basis). The trust is committed to pay 100% of its earnings for FY11.
Portfolio occupancy remained at 95.1%, positive rental reversions to continue in coming quarters. Average occupancy levels at its multi-tenanted buildings (“MTB”), which make up an estimated 56% of income, remain stable at 91.5% but is expected to improve in the coming quarters as the manager is in talks with prospective tenants to take up the vacant spaces. Rental income will improve with continued positive rental reversions as average asking rents remain above expiring rents.
Recommendation
BUY, TP S$2.11 offers total return of 12%. We continue to like A-reit for its diversified exposure and stable yields of c6.9-7.2%, which are attractive. Further re-rating catalysts in our view, would stem from the manager announcing further acquisitions/development projects opportunities which they are currently considering.
A-REIT – DMG
No surprises; delivers another steady quarter
1QFY11 results inline with expectations. A-REIT reported 1QFY11 DPU of 3.37¢ (-6.9% YoY; +23.4% QoQ), representing 25% of our FY11 DPU forecast of 13.7¢. Net property income rose 8.2% YoY contributed mainly from a larger portfolio base and positive rental reversion. A-REIT will trade ex-1Q11 distribution on 22 July. At our TP of S$2.11, A-REIT offers a yield of 6.5%, a reasonable peg in our view. Maintain NEUTRAL.
Occupancy remained stable; positive rental reversion. Reflecting the stabilisation in global demand, A-REIT’s portfolio occupancy remained stable at 95.6% in 1QFY11. For its multi-tenanted properties, occupancy was unchanged at 91.5%. A-REIT saw positive rental reversion for the renewal leases for properties in the Business & Science Parks and Hi-Tech Industrial of between 3.4% and 3.7%.
Focus on built-to-suit and other acquisition opportunities. With a gearing of about 34%, A-REIT has ample dry powder to undertake acquisition and development projects. Management has indicated that they will continue to scout for opportunistic acquisitions and/or built-to-suit development projects for high-credit quality tenants and well-located income producing properties to ensure sustainable yield accretive returns. A-REIT is currently developing a partial built-to-suit business park facility in Changi Business Park for Citibank. Upon completion in 4QFY11, Citibank will lease at least 50% of the building for a period of 6 years with annual rental escalation and option to renew for two further terms of 3 years each.
Stock almost fully valued; maintain NEUTRAL. We maintain our FY11 DPU forecast of 13.7¢ as dividends are well supported by the long-term leases. AREIT trades at an FY11 yield of 6.8%. Should we factor a more bullish yield peg of 6%, A-REIT’s recursive fair value would be S$2.28, an upside of 14%. Maintain NEUTRAL. Buy on dips.
CCT – BT
Frasers Centrepoint buys StarHub Centre for $380m
CapitaCommercial Trust will book a net gain of about $109.1m from the divestment
FRASERS Centrepoint Ltd has inked a deal to buy StarHub Centre at Cuppage Road for $380 million from CapitaCommercial Trust (CCT).
CCT will book a net gain of about $109.1 million from the divestment. The transaction price is 42.5 per cent or $113.3 million above the asset’s latest valuation of $266.7 million at June 30, 2010.
CB Richard Ellis brokered the sale of StarHub Centre.
Frasers Centrepoint CEO Lim Ee Seng said that StarHub Centre has ‘great redevelopment potential for a high-end mixed residential and retail development’. The asset will continue to be leased out as an office/retail property until such time as redevelopment options and designs are firmed up by the company, and planning approvals are obtained, Mr Lim added.
The group’s Centrepoint Shopping Centre already has a second-storey link bridge to StarHub Centre and a new project on the StarHub site will better integrate the two properties, market watchers say.
The sale by CCT will provide it with net proceeds of about $375.8 million – after taking into account divestment fee and other related costs – which will provide the trust with greater financial flexibility to pursue other attractive acquisition opportunities and/or to repay debt, the trust’s manager, CapitaCommercial Trust Management Ltd (CCTML) said.
It also revealed that on July 13 it received in-principle approval from Singapore Land Authority (SLA) for a top-up of the StarHub Centre site’s lease to 99 years. The site currently has a balance lease term of about 85 years. However, the lease upgrading premium payable to the state will be determined upon formal application.
In January, Urban Redevelopment Authority granted outline planning permission (OPP) for a change of the site’s use, from pure commercial use currently – to a residential (60-80 per cent of gross floor area or GFA) and commercial use (20-40 per cent of GFA). However, the current gross plot ratio of 4.9+ remains unchanged.
‘After evaluating various asset options and Singapore’s property market conditions, the manager believes that the property has reached its optimal stage of life cycle as an office building. However, as CCT’s focus is mainly in the office sector, the manager is of the view that CCT should not participate, whether solely or on a joint-venture basis, in the redevelopment of the property into a predominantly residential project and expose CCT to undue residential development and market risks.
‘Hence, the manager considers that the best option to unlock the maximum value of the asset for CCT is to divest it to another party for potential redevelopment,’ CCT’s manager said.
It also stressed that the sale to Frasers Centrepoint is not subject to any additional planning or redevelopment approval of any kind being obtained, following the OPP. It is also not a condition of the sale that CCT fulfils the conditions of the in-principle lease upgrade approval from SLA.
CCT also explained the process of picking the buyer.
‘After an exercise to gather formal expressions of interest from a long list of prospective bidders to purchase the property, the sale of the property was conducted by way of a private tender with the parties which had expressed an interest to purchase the property. The purchaser was one of the bidders which offered to purchase the property and whose offer and terms for the purchase (a) did not introduce any new provisions which would give rise to the right of the purchaser to rescind the purchase, thus offering more certainty in the completion of the sale, and (b) met most closely with the requirements of the manager and the trustee,’ CCTML said.
Frasers Centrepoint said the acquisition of StarHub Centre will boost its landbank to 2.2 million square feet.
A-REIT – BT
A-Reit posts 3.5% rise in Q1 distributable income
ASCENDAS Real Estate Investment Trust (A-Reit) has posted a 3.5 per cent rise in distributable income to $63.1 million for its first quarter ended June 30, up from $61 million a year earlier.
The period saw net property income climb 8.2 per cent year-on- year to $87.3 million and gross revenue up 10.9 per cent at $113.6 million.
But distribution per unit (DPU) for Q1 – which had a bigger unit base – fell 6.9 per cent to 3.37 cents, from 3.62 cents a year ago. The Q1 DPU was up 3.4 per cent compared with a proforma DPU of 3.26 cents a year ago, which included new units issued in the August 2009 placement, in lieu of base management fee in December 2009 and June 2010 and for payment of acquisition fee in June 2010.
Net property income growth could have been higher if not for higher operating expenses attributed to the enlarged portfolio, higher utilities expenses, and the end of land rent rebates given by the government in 2009.
‘We are pleased to commence the financial year with a 10.9 per cent growth in gross revenue contributed mainly by the larger portfolio base from a year ago,’ said Tan Ser Ping, chief executive officer of A-Reit’s manager, Ascendas Funds Management (S) Limited.
Occupancy rate for the portfolio in Q1 has remained stable at 95.6 per cent.
Also, rental reversion on lease renewal continued to be positive for the Business & Science Parks and Hi-Tech Industrial properties in the first quarter.
Jonathan Ng from DMG & Partners Research said: ‘We maintain our FY11 DPU forecast of 13.7 cents as dividends are well supported by the long-term leases.’
A-Reit is currently developing a partial built-to-suit business park facility in Changi Business Park for Citibank.
As at June 30, 2010, A-Reit’s portfolio consists of 92 properties and a total asset value of about $4.9 billion.
A-Reit’s manager aims to at least maintain the previous financial year’s level of net income for FY2010/11.
The counter closed two cents higher yesterday at $2 per share.
Cambridge – DBSV
Divesting non-core assets is positive
At a Glance
• DPU of 1.24 Scts in line
• Restructure portfolio with aim of lowering leverage is positive in the longer term
• Stable 9.9% yields, maintain BUY, TP S$0.54.
Comment on Results
No surprises in 2Q10 results. Topline was slightly lower at S$18.3m (-0.9% yoy) due to divestment of properties; offset somewhat by higher rentals from its periodic rental escalation clauses. Portfolio occupancy remained high at 99.9%, with incomes relatively secured. Net property income improved marginally to S$16.1m (+0.5%) due to lower operating expenses. Despite relatively flat distributable income of S$10.8m, DPU was down 7.8% yoy to 1.24 Scts due to larger unit base.
Portfolio revaluation remained stable. CREIT’s portfolio was revalued at S$831.1m at half time, up S$6.1m (+1%) after netting off its divested properties, translating to 59.9 Scts NAV.
Recommendation
Positive capital recycling strategy. We are positive on management plans to continuously sell its non-core assets, keeping the portfolio relevant. To date, CREIT recorded S$49.7m in asset sales and has contracted to sell another S$40.5m worth in the coming quarters. A majority of the proceeds (up to S$60m) will be used for debt repayments to strengthen balance sheet and lower gearing to <40% by end FY10. The rest will be channeled towards planned asset enhancement initiatives (AEI).
Time to look for growth opportunities? Planned AEI on a couple of its assets could further enhance portfolio yields in the medium term, which are not factored in our numbers yet. Acquisitions however, could be challenging given relatively high-implied yields of c9.0%. With gearing of 42%, any acquisitions would have to be partially funded by new equity, which is expensive.
Buy for stable yields of 9.9%. CREIT remains attractive for its stable FY10-11F DPU yields of 9.9%, 300 bps above the Sreit peers and 740 bps above the Singapore government bond yields.