AREIT – CIMB
Bulk of refinancing secured
• Performance on track. A-REIT’s 2QFY09 results were in line with Street and our expectations. DPU of 4.01cts for the quarter grew 14.2% yoy, forming 26% of our forecast of 15.4cts for FY09. Gross revenue of S$97.3m was up 21.3% yoy due to continued strong rental reversions from Business and Science Park and Hi-Tech segments, as well as additional revenue contribution from completed acquisitions. These include 8 Loyang Way 1 (SKP) in May, 31 International Business Park (Creative) in June and completion of Pioneer Hub BTS in August. 1H09 DPU of 7.9cts was also in line with expectations, forming 51.3% of our full-year estimate.
• Refinancing for bulk of FY10-11 debts secured. The management announced that it had secured a $200m bilateral loan from its relationship bank that could be used for its refinancing of its nearest major debt of S$300m CMBS due in Aug 09. Tenure of the loan is three years. Borrowing spreads was attractive at under 120bps. Additionally, management also expects to refinance its term loan facility of S$300m due in March 2010 with its existing relationship bank for a tenure of two years. All-in cost of A-REIT’s total debt of S$1.9bn as at 30 Sep 08 stood at 3.25%, up marginally from 3.16% from the last quarter. Asset leverage stood at 41.4% in
the same period.
• New S$25.6m BTS at Airport Logistics Park of Singapore (ALPS). The management announced that it has secured a new BTS project from Expeditors Singapore Pte Ltd. A-REIT will develop a logistics facility at the ALPS for the tenant for S$25.6m. The 11,430sqm facility is expected to complete by Dec 09 and will be leased to Expeditors for a period of 5 + 5 years. Assuming a net development yield of 9%, we estimate a positive increase of 0.3% to the DPU with this addition.
• Maintain Outperform, increased target price of S$2.17. We add to our model the new BTS development and increase our earlier revenue contribution assumptions from FY09 acquisitions to 60% up from 40% to reflect more precise timing of contribution. Our DPU estimates for FY09-11 increases by 0.3-2.1% Our DDMderived target price (discount 8.7%) increases marginally to S$2.17 from S$2.16. Maintain Outperform.
AREIT – DBS
Resilient even in turbulent times
Story: Ascendas REIT (AREIT) released 2Q08 results that were within expectations. Gross revenues and NPI grew 21% yoy to S$97.3m and 72.6m respectively. Main contributors were from (i) positive rental reversions from expiring leases and (ii) additional rental income from various 3rd party completed acquisitions and development projects; HansaPoint@CBP which received TOP in Jan’08. Distributable income also increased 16% to $53.3m, translating to a DPU of 4.01cts.
Point: Moving forward, we expect outlook to turn challenging on the back of potential slowdown in Singapore’s economy, leading to softening demand for industrial space. While we expect some moderation in rents and occupancy levels moving forward, AREIT should still be able to ride out these turbulent times given that (i) long lease expiry portfolio of 5.5 years, of which 49% are Sale-Lease Back Buildings that were mostly signed on as long term leases, and (ii) prudent capital management that should limit the impact of rising interest rates on DPU. As such, we are adjusting our rental & occupancy rates (-5 to 10%) and interest rates assumptions (+50bps). Imputing the above changes, our DPU forecast for FY09F-FY11F are to 15.6 Scts (0%), 15.0 Scts (-10.5%)and 15.1 Scts (new estimate) respectively.
Relevance: AREIT currently offers at an attractive DPU yield of c.10% over FY09 – FY11, backed by quality properties located in major industrial hubs in Singapore. Maintain BUY, TP$2.10 based on parity to our RNAV estimate.
K-Reit – SGX
K-REIT Asia Achieves Higher YTD September 2008 Distribution Per Unit
- Distributable Income increases by 173.8% year-on-year and outperforms forecast by 13.6% due to strong rental reversions and additional contribution from One Raffles Quay.
- Net property income increases by 31.1% year-on-year to $27.8 million.
- Portfolio achieves 99.4% committed occupancy as at 30 September 2008.
K-REIT Asia Management Ltd, the manager of K-REIT Asia, is pleased to announce that K-REIT Asia achieved a distributable income of $40.8 million for the period from 1 January to 30 September 2008 (“YTD September 2008”), up 173.8% from that for the same period in 2007. This was due mainly to higher rental rates achieved for new and renewed leases and income contribution from K-REIT Asia’s one-third interest in One Raffles Quay Pte Ltd (“ORQPL”).
Higher gross rental income from K-REIT Asia’s initial four properties, namely Keppel Towers, GE Tower, Prudential Tower and Bugis Junction Towers, drove up net property income by 31.1% year-on-year to $27.8 million for YTD September 2008.
On the back of the rise in distributable income, 3Q 2008 DPU amounted to 2.34 cents, resulting in a YTD September 2008 DPU of 6.28 cents.
Challenging Market Conditions Ahead
Against the backdrop of heightened uncertainties in the financial markets, average prime rents and average Grade A rents remained unchanged at $16.10 psf and $18.80 psf respectively in 3Q 2008, as reported by CB Richard Ellis (“CBRE”). During the quarter, the core CBD vacancy rate remained low at 3.8%.
The average monthly gross rent of K-REIT Asia’s portfolio increased by 67.7% year-on-year to $7.43 psf in September 2008, driven by positive rental reversions and contributions from ORQPL. Excluding ORQPL, average gross rent in September 2008 was $5.99 psf for the initial properties. K-REIT Asia achieved 99.4% committed occupancy as at 30 September 2008.
Despite testing market conditions ahead, the long-term fundamentals for Singapore remain intact, as it transforms into a global city, supporting office demand. Singapore continues to be an attractive business destination in Asia as it diversifies beyond being an international financial hub and establishes multi-hubs in other areas such as biomedical, pharmaceutical, air transport, telecommunications and education.
Capital Management
K-REIT Asia has no debt refinancing requirements until 2011. Its aggregate leverage remains low at 27.6% as at end-September 2008.
Going Forward
According to advance estimates from the Ministry of Trade and Industry, Singapore’s real GDP declined by 0.5% in 3Q 2008 from 2.3% growth in 2Q 2008, due mainly to a contraction in the manufacturing industry, which accounts for a quarter of the economy. Given the worsening of the global financial crisis, the Singapore government has revised its full-year growth forecast to about 3% from 4 – 5%.
Despite the economic slowdown, the Manager of K-REIT Asia expects to achieve its forecast distribution of 7.53 cents per unit or 10.09 cents per unit (based on weighted average number of units) for the financial year ending 31 December 2008, as shown in the circular dated 9 April 2008.
The current volatile market conditions may present investment opportunities for quality assets. The Manager is monitoring the market and continuing its efforts to seek out such opportunities selectively.
AREIT – BT
Ascendas-Reit Q2 net rises 14.8% to $53.3m on additional rental income
ASCENDAS Real Estate Investment Trust (A-Reit) yesterday reported net distributable income of $53.3 million for its second quarter ended Sept 30, 2008. This is 14.8 per cent higher than a year ago.
Fuelled mainly by additional rental income from completed acquisitions and development projects, gross revenue rose 21.3 per cent year-on-year to $97.3 million.
Distributable income per unit (DPU) was 4.01 cents, up 14.2 per cent from the same period last year. Based on the six months to Sept 30, annualised DPU stands at 15.8 cents. This translates to an annualised yield of 8.4 per cent based on the $1.87 closing price of units on Sept 30.
The ‘sustainable financial results’ were achieved amid a ‘turbulent global financial market and a slowing economy,’ said A-Reit manager Ascendas Funds Management (S) chief executive Tan Ser Ping.
First-half gross revenue, net distributable income and DPU all increased from a year earlier.
With credit concerns growing in the market, A-Reit said that it remains committed to prudent capital management.
For instance, it has entered into fixed-rate hedging for 76.7 per cent of its debt for the next 3.93 years at a weighted average cost of 3.25 per cent. It is also getting a $1 billion medium term note programme ready in November to diversify funding sources.
For A-Reit’s portfolio of 88 properties with a total book value of around $4.5 billion, the overall occupancy rate was 98 per cent at Sept 30.
As current average passing rents within the the portfolio remain lower than market spot rents, A-Reit expects to see positive rental reversion for most leases due for renewal in the rest of the financial year.
Barring any further deterioration in the external economic environment, the manager believes A-Reit is well-placed to deliver a DPU for the current financial year ‘in line with its recent performance’.
A-Reit’s unit price ended 16 cents lower at $1.51 yesterday.
Shipping Trusts – OCBC
Sharp sell-off across sector
Pessimism rules the seas. We attended Marine Money’s Asia conference earlier this week where the mood of both speakers and participants was overwhelmingly pessimistic. Conversation was focused on two key themes:
1) consequences of the current credit crisis on ship and trade finance; and
2) unfavorable industry outlooks, especially for the container and dry bulk sub-sectors.
Sharp sell-off across trusts. First Ship Lease Trust (FSLT); Pacific Shipping Trust (PST); and Rickmers Maritime (RMT) were all in attendance. ince our last sector report dated Sept 10, the shipping trusts have seen a sharp sell-off in share prices (FSLT down 61%, RMT down 58%, and PST down 37%). We attribute the decline to both transient fears: today’s abnormal credit conditions which have paralyzed equity markets; and to more enduring concerns: the trusts’ extensive use of leverage and overall industry concerns.
Beware the fine print. FSLT announced last week that its lenders had invoked the market disruption clause (MDC) as the reference rate on the loans, the US$ LIBOR, did not accurately reflect the lenders’ actual cost of funds. With increased interest costs, FSLT reduced its DPU guidance for 4Q08 by 1%. PST and RMT told us that some version of the MDC also exists in their loan documents but it has not been invoked as of now. The MDC is a standard clause in almost all loan documents. In our view, the next bit of fine print to watch is loan-to-value.
Multiple layers of risks. There is a very real risk of a large depreciation in underlying asset and rental values. Falling asset values can breach a loanto- market value covenant, triggering a technical default (and potentially distressed sales). We note that PST is the only shipping trust without a version of this clause in its loan documents. Meanwhile, counterparty risk is also becoming more of a concern – a charterer default or rate renegotiation could stress cash flows, endangering distributions or debt repayments. Committed capex is another possible stressor.
The recent sell-off is an overcorrection (in our view) but market logic is trumping everything else at present and we believe we could see further value destruction. We maintain our BUY ratings on PST and RMT, and our HOLD rating on FSLT but place all our fair value estimates under review as we work in latest developments. We believe the trusts will continue to be barraged by negative news flow on the shipping industry.