Singapore Reit News

No surprises

• FY08 results in line. Gross revenue was S$322.3m in FY08, up 13.9% yoy. Although this was marginally below our expectation (94.3% of full-year forecast), lower-than-expected interest rates brought FY08 distributable income to S$187.3m and DPU to 14.1cts, in line with consensus (13.9cts) and our estimates (13.8cts).

• Warehouse retail segment yielded 9.1%. Warehouse retail posted the strongest yoy growth in net property income, up 343% to S$11.1m. This was led by full contributions from the Courts and Giant buildings which had been completed at the end of FY07 and early FY08. At development costs of about S$121m, net yields from this segment were 9%, above average acquisition yields of 6-7%. The other segments also posted strong yoy growth of 6-15%.

• Short-term borrowings to drop from 15% to 2%. As at 31 Mar 08, A-REIT’s short term debt of S$238m was 15% of its total borrowings of S$1.6bn. Management addressed concerns over its growing short-term liabilities with the assurance that a 3-year term loan facility for S$200m would be finalised in about two weeks. This would lower its short-term debt to S$38m, or 2% of its total debt. About 72% of its interest exposure is fixed at a weighted average cost of 3.1%.

• Possible overseas acquisition in two years. Management indicated that it may acquire overseas properties in about two years, after its S$309m of development projects are closer to completion. Targets are likely to be in neighbouring countries such as Vietnam and Malaysia. Acquisitions from Ascendas’s ASEAN Business Space Fund are also possible (see earlier note dated 14 Mar 08).

• Maintain Outperform with higher target price of S$3.07 (from S$2.99). We adjust for a higher rental base for the warehouse retail segment, increasing our FY09 DPU forecast to 15.3cts (+2.9%) and FY10 forecast to 16.4cts (+0.3%). Our DDM-derived target price (discount 6.7%) increases correspondingly from S$2.99 to S$3.07. Maintain Outperform.

A-List player

Story: Ascendas recorded a strong end to FY07/08 with a 10.8% growth in DPU to 14.13cts in line with expectations. NPI grew 15.8% y-o-y to S$243m, on top of a 13.9% growth in gross revenues to S$322m. Main contributors for the strong operational performance were I) an increased portfolio occupancy (98.4% compared to 96.4% yoy), ii) organic growth from positive lease rental reversions of 274,061 sqm of its NLA during the year and iii) partial contributions from its seven new acquisitions and its development project, HansaPoint@CBP and from its asset enhancement initiatives. As at 31st Mar 07, its NAV per share was S$1.84, up from $1.49 a year ago..

Point: The strong result reaffirms A-REIT manager’s ability to deliver value through acquisitions and its prudent capital management which resulted in a flexible 38.2% gearing ratio, allowing a debt headroom of c.S$880m before it reaches the 60% regulatory limit. We believe that A-REIT will utilise debt to fund its short-term investment activities. While maintaining our acquisition assumptions of S$400m p.a till FY11, we have slightly revised our funding assumptions to be fully funded by debt in FY09 and thus maintaining a LT gearing ratio of 45%. As a result, we estimate A-REIT to deliver a higher FY09 and FY10 DPU of 15.6cts and 15.9cts respectively.

Relevance: We remain confident of A-REIT’s ability to drive DPU growth moving forward from a i) development pipeline worth c.S$300m, ii) sourcing for 3rd party properties, iii) active asset management in optimising property yields and at the same time, keeping its interest cost and repayment at a manageable level. A-REIT is currently trading at a FY09 and FY10 yield of 6.6% and 6.8% respectively . Maintain BUY with a revised TP of S$2.86 based on DCF.

4QFY08: Benefitting from spillover demand from the CBD

A-REIT reported gross revenue of S$84.4m in 4QFY08, an increase of 13.9% yoy. Overall occupancy reached 98.4% at Mar 08, compared to 96.6% last year. A-REIT announced DPU of 3.69 cents for 4QFY08, an increase of 11.8% yoy. This represents annualised yield of 6.3% and will be paid on 30 May 08.

Positive rental reversion for Science & Business Park and Hi-Tech Industrial space. A-REIT benefits from the shortage of office space within the Central Business District (CBD). This has forced many companies to relocate non-client-facing backroom and data centre operations to suburban locations such as Alexandra Technopark and Changi Business Park (CBP). There is also positive impact from inflow multinational companies expanding in Singapore. AREIT has signed renewed and new leases for total net lettable area (NLA) of 784,925sf during the quarter, representing 9.7% of NLA for multi-tenanted buildings. Renewal rates for Science & Business Parks and Hi-Tech Industrial were S$3.76 and S$3.10psf pm, 68.8% and 49.8% higher on a yoy basis.

A well diversified portfolio. A-REIT has a portfolio of 84 properties and total assets of S$4.2b at Mar 08. The weighted average lease to expiry at 5.9 years. It has a quality and well diversified tenant base of over 790 international and local companies. The top 10 tenants accounted for 27.9% of portfolio income. The largest tenant Singtel accounted only 6.5% of portfolio income. A-REIT’s weight average funding cost is 3.1% due to its corporate rating of A3 and consistent track record. It will be concluding a three-year S$200m transferable loan facility, after which the earliest date for refinancing is Aug 09.

Maximising returns through development projects. A-REIT has completed its third development project HansaPoint@CBP, a partial built-to-suit seven-storey business park building, in 4QFY04. The building is already fully occupied and anchor tenant is Rohde & Schwarz. It has another three development projects located at Plot 8 Changi Business Park (substantially pre-committed to Citigroup), Plot 7 & 8 Changi LogisPark (substantially pre-committed to Zuellig Pharma) and Pioneer Walk.

Maintain BUY. A-REIT provides FY08 distribution yield of 6.41%, a healthy spread of 4.04% over 10-year Singapore government bond yield at 2.37%. Our target price is S$3.00 based on 2-stage dividend discount model.

A-Reit full-year distributable income rises 14.3% to $187.3m

ASCENDAS Real Estate Investment Trust (A-Reit) has reported gross revenue of $322 million for the full year ended March 31, 2008 – an increase of 13.9 per cent over the previous year.

Net property income for the year came to $243 million, up 15.8 per cent year on year.

Distributable income for the FY2007-08 totalled $187.3 million, up 14.3 per cent year on year, while distributable income per unit (DPU) was 14.13 cents, a 10.8 per cent rise. This also represents an annualised yield of 5.94 per cent based on the closing price of $2.38 per unit on March 31, 2008.

For the quarter, DPU was 3.69 cents, an increase of 11.8 per cent compared with the same period a year ago. This will be paid out on May 30, 2008.

A-Reit manager Ascendas Funds Management Ltd’s CEO Tan Ser Ping attributed growth in net property income to ‘positive rental reversion, active leasing and full-year contribution from prior year acquisitions’.

A-Reit now has 84 properties worth $4.2 billion, up from 77 properties worth $3.3 billion a year ago.

In the mandatory annual revaluation exercise conducted in March 2008, A-Reit also recorded a net appreciation of $494.1 million or 14.2 per cent over the book value of the properties (before revaluation) as at March 31, 2008.

In the year, A-Reit acquired seven properties and completed its third development project, HansaPoint@CBP, as well as two asset enhancement initiatives for a total of about $310 million.

The overall occupancy for A-Reit’s portfolio of 84 properties stands at 98.4 per cent compared with 96.6 per cent a year ago. Occupancy rate for multi-tenanted buildings increased by 2.7 per cent to 96.4 per cent compared with a year ago. It said the increase in occupancy is partly due to the spillover demand from the tight office supply situation in the CBD and the continued inflow of multinational companies setting up or expanding operations in Singapore.

For the year, A-Reit renewed or leased a total of 274,061 sq m of space. On a year-on-year basis, it registered 46 per cent and 40.3 per cent for its renewal rental rates for the Business and Science Parks, and high-tech industrial sub-sectors.

For the year ahead, A-Reit manager Ascendas Funds Management said it ‘expects to be able to deliver a DPU for the coming year that is in line with its recent performance’.

However, it did highlight a CB Richard Ellis report which expects the increase in rents and occupancy rates for high-tech and business parks space to continue at a ‘less brisk pace due to limited upcoming supply’.

Yesterday, A-Reit’s unit price fell two cents to close at $2.35 per unit.