This improvement was due to the additional rental income from the acquired properties, higher occupancy of 96.6% as compared to 95.0% a year ago and organic growth of 2.7%.

Outlook
According to CBRE, there is an increase in capital value and rental rates by around 5% for all industrial space in 1QCY07. We remain positive on hi-tech space and Business and Science Park where demand is expected remain strong given the limited supply and increasing rental rates of office space in the Central Business District. Of note, A-REIT has 45% of its portfolio in the Hi-tech and Business and Science Park sectors. With both the stepped rental increase for the long-term leases and the positive rental reversions for the short-term leases, A-REIT is expected to continue to benefit from organic growth. Some 57% of under-rented leases are due for renewal in FY08.

Recommendation
A-REIT targets an asset size of S$5.0bn by 2010, with S$400.0m p.a. worth of acquisitions and development required. Hence, we have reduced our acquisition pipeline from S$500.0m p.a to S$400.0m p.a. from 2008 to 2010. Based on DCF Valuation rolled over to FY08), we have a target price of S$2.69. This derives a total return, including yield, of 17%. Upgrade our recommendation to Buy from Hold.

Still a distinct advantage

• 3Q07 results beat our expectations. 3Q07 DPU of 3.2cts represents 26% of our full-year forecast and 25% of consensus. Our FY07 DPU forecast is 77% fulfilled YTD. Gross rental revenue was up 16% yoy to S$71.1m in 3Q07, on account of a larger portfolio as well as improved occupancy of 96.1% vs. 94.7% a year ago. Renewal rentals for Hi-Tech Industrial and Business & Science Park properties, which make up 46% of Areit’s portfolio, also increased by about 14% from existing rates in 3Q07. Gearing remained manageable at 40% as at end-3Q07.

• Adds new business park property. Areit has acquired 27 International Business Park, a multi-tenanted property with an NLA of about 9,079 sq m, from Primefield for S$18.6m. Annualised proforma addition to FY06 DPU is 0.02ct, assuming the acquisition is funded by 40% debt and 60% equity. According to Jones Lang LaSalle, business park rentals rose for the sixth consecutive quarter in 3QCY06 to S$155/sq m p.a., up 16% from a year ago. As surging office rentals drive more tenants into housing their backroom operations in business parks, we expect Areit’s business park business to remain strong.

• Headroom for more development projects. Areit currently has five acquisitions worth S$214m, pending completion. About S$127m of these are built-to-suit projects, which translates into S$170m (S$236m, excluding the Cold Storage WRS property which would be ready in Mar 07) worth of potential development projects. As these development projects are typically high-yielding, we see more robust DPU growth for FY08 and beyond.

• Maintain Outperform; target price raised to S$2.82. Considering that 27 International Business Park (estimated yield of 6.7%) will be contributing this quarter and our FY07 DPU forecast is already 77%-met, we have raised our DPU forecast for this year by 3% to 12.8cts. FY08-09 DPU forecasts have also been raised by 2-5% to reflect the higher-yielding acquisitions that will be completed after FY07. Accordingly, our DDM-derived target price has been lifted from S$2.60 to S$2.82 (cost of equity still 6.2%). Forward yields of 5-5.6% remain attractive compared to the 4.5-5% yields that S-Reits currently trade at. Maintain Outperform.

Home-made goodness

• Fourth development project announced. Areit recently announced it is building a logistics-cum-office facility at Changi LogisPark (North), with Zuelig Pharma as its anchor tenant. The cost of the project is estimated at S$32.5m, with completion scheduled for early 2008. Pro-forma accretion to FY06 DPU is 0.02ct. We estimate the initial yield at 7.5%, which is in line with the highly yield-accretive nature of such development projects.

• Internal pipeline a distinct edge. Given the quick turnaround time for such development projects, Areit now has a stable pipeline of high-yielding properties which it is developing before acquiring them, or “home-made” acquisitions. Such internal injections are more yield-accretive than external acquisitions. In a fiercely competitive environment for high-yielding property assets, we see this as a strength. This pipeline will also help to mitigate competition from the impending JTC REIT.

• Advantage of a large portfolio. Singapore REIT regulations limit the value of development projects that a REIT can undertake to 10% of its asset portfolio. With a large portfolio of S$2.9bn, Areit can take on S$290m worth of developments, a bigger amount than for its peers. Areit’s four projects on hand are worth S$189m (6.6% of portfolio), implying it can undertake additional projects worth S$100m.

• Target price raised to S$2.60. We raise our FY09 DPU forecast by 3% to 14cts to reflect the higher yield of the new project. Our DDM-derived target price has been upgraded from S$2.43 to S$2.60 accordingly. We like Areit for its shift in focus from acquisitive growth to internal developments. Forward distribution yields are decent at 5.3-6% vs. the S-REITs’ average of 5.1-5.6%. Maintain Outperform.

Growth rate to slow

In line results. Ascendas REIT (A-REIT) reported an in line set of 2Q07 results. Revenue came in at S$69.9m, up +35% YoY and +3% QoQ. Distributable income growth was more moderate at 19% YoY or +2% QoQ to S$40.5m. Distribution of income per unit (DPU) was at 3.16 cents, +9% YoY and +2% QoQ. Strong top-line growth was due to the acquisition of 23 properties in the last 12 months. This was moderated by higher operating and non-operating expenses as well as higher interest costs.

Growth rate to slow down. As A-REIT's earnings growth has been on the back of acquisitions, the key issue is whether the pace of growth is sustainable. Its assets have grown about S$420m in FY04, S$1000m in FY05 and S$656m in FY06. So far, A-REIT has acquired S$108m of properties with S$180m pending completion and another S$178m worth of MOUs signed and under due diligence. For FY07, total acquisition value will be around S$466m. If we include potential development projects (REIT guidelines allow up to 10% of assets to be development projects), this should add a further S$133m, making total potential acquisitions in FY07 of about S$599m - still below last year's S$656m, implying a slowdown in growth rate.

Intensifying competition. We do not anticipate the competitive environment to ease. Presently, there are already two other REIT players in the industrial scene, i.e. Mapletree Logistics Trust and Cambridge Industrial Trust. JTC REIT is due out soon with a size that could rival AREIT. As all players are likely to adopt the same "acquisition for growth" business model, we do not anticipate the segment in which A-REIT operates to ease.

Upped fair value. Since our last report in July, A-REIT has adopted a new twist to its growth model. It is now increasing its focus on development projects and is willing to undertake such projects without full commitment on the space (its Changi business park project has only 30% space commitment). This is a higher risk strategy but in a rising market it is probably a manageable one. This strategy is likely to be positive on AREIT's valuation and is likely to ensure that it achieves a portfolio size of S$4.0bn. We maintain our HOLD rating.

SINGAPORE - Ascendas Real Estate Investment Trust (A-Reit), Singapore second-biggest property trust by market value, on Tuesday reported a 19 per cent rise in quarterly distributable income, boosted by its growing portfolio of business parks and industrial properties.

A-Reit earned distributable net income of $40.5 million (US$25.6 million), or 3.16 Singapore cents per unit, for its fiscal second quarter to the end of September. This compares with $33.9 million in distributable income in the same period a year ago.

The company said that demand for business and science park space is likely to remain healthy as the government continues to encourage companies to engage in research and development in Singapore.

A-Reit competes against commercial and industrial property-based trusts Mapletree, CapitaCommercial Trust and Allco Reit among Singapore-listed property trusts.

The trust is managed by Ascendas-MGM Funds Management Ltd, a joint venture between Singapore's Ascendas Investments and Australia's Macquarie Goodman Industrial Management Ltd. -- REUTERS Reut 09:24 10-17-06

First Quarter Results within expectation

1Q06 Results. A-REIT achieved a DPU of 3.09 cents for 1Q07(three months ended 30 June 2006), 9% above 1Q06 DPU of 2.84 cents. Net income rose to S$39.6m, recording a 20% increase against 1Q06. However, net income margin dropped from 62.6% to 55.7% prior corresponding period (pcp), a decrease of 11%. This is mainly due to the higher interest rate environment and higher property operating expenses. The increase of property expense is due to the introduction of energy aggregation for 9 properties and higher multi-tenanted ratio acquisition. Investors can take note that the ex-date of the distribution of 3.09 cents per unit is on 21 July 2006 and will be paid out on 24 Aug 2006.

Acquisitions. Compression of yields for acquisition of business space properties has decreased to 6.5%~7.0% due to higher competition for properties. A-REIT has announced three proposed acquisitions, worth in aggregate about S$150m, namely LabOne Building, built-to-suit warehouse retail facilities for Courts (S) Limited and Cold Storage Singapore for its Giant hypermarket operation.

Singapore Industrial Property. According to URA, prices of multiple-user factory space rose 0.5% in the 1Q06, with vacancy rate unchanged at 10.5%. Rentals of multiple-user factory space rose 0.8%, compared with the 3.3% increase in the previous quarter. We expect flatted factories and logistics space to remain subdued due to potential new supply and vacancy.

Valuation. The recent meltdown of the market has dragged along A-REIT to a downtrend. With the entry of more REITs into Singapore market including Cambridge Industrial Trust, more competition in term of yield is expected. We have assumed a lower projection of S$400m worth of acquisitions for FY07 as well as FY08. Moreover, higher yield compression is taken into account for future acquisition assumption. Using DDM with a required rate of return of 9%, we obtained a fair value of S$2.09, representing a yield of 5.7%. We downgraded A-REIT to Hold due to the higher interest rate environment, higher assets competition, and a slowing economy. However, we still think A-REIT is a good buy for long-term investors due to its current high yield of 6.2%, a spread of 2.6% to RFR.

9% y-o-y rise in A-Reit DPU

It announces 3.09 cents DPU for first quarter

ASCENDAS Real Estate Investment Trust (A-Reit) announced a distribution per unit (DPU) of 3.09 cents for the quarter ended June 30, up 9 per cent year on year. Revenue for the latest quarter was up 35 per cent year on year to $68 million while net property income rose 27 per cent to $50.1 million.

Tan Ser Ping, chief executive officer of A-Reit's manager, Ascendas-MGM Funds Management, attributed the positive results to organic growth coming from positive rental revisions in high tech industrial and science and business park properties as well as prior-year acquisitions. 'We are pleased to begin the new financial year with a sound first-quarter performance,' said Mr Tan.

Looking ahead, Mr Tan said: 'With the improving market conditions in the high end of the industrial property market, A-Reit is well positioned for another year of stable returns for its unitholders.' A-Reit said it is positive on the outlook for high tech industrial and business and science park space. However, the rental outlook for flatted factories and logistics space is flat.

A-Reit's latest quarterly DPU represents an annualised yield of 6.4 per cent based on the closing price of $1.92 per unit on June 30. As at end-June, A-Reit had a portfolio of 66 properties, valued at $2.9 billion, housing a tenant base of over 740 international and local companies. The occupancy level of A-Reit's portfolio of 66 properties rose to 96.1 per cent as at end-June from 94.9 per cent a year ago.

In the latest quarter, A-Reit completed the acquisition of two properties worth a total of $78 million. Additionally, the trust has announced the acquisition of three properties for a total of $150 million, that have yet to be completed.

A-Reit said with concerns over rising global interest rates being a focus for Reit investors, it has continued its hedging programme to fix a large proportion of its interest rate exposure through interest rate swaps.

Extracts fm UOBKayHian Report dated 14-Jul-06,

A-Reit reports first quarter DPU of 3.09 cents, 9% above prior corresponding period

A-Reit announced its first quarter FY06/07 results yesterday.

• Distribution per unit (DPU) of 3.09 cents was declared, which is an 8.8% increase from the previous corresponding quarter. This represents an annualised yield of 6.4% based on the closing price of S$1.92 per unit on 30 June
  
• Gross revenue was S$68.0m, 35% up year-on-year. Net property income and distributable income were S$50.1m and S$39.6m respectively.
  
• Overall occupancy of A-Reit’s portfolio of 66 properties rose to 96.1% as at 30 June 06 compared to 94.9% in the previous year. The occupancy rate for A-Reit’s multi-tenanted buildings have also increased to 92.1% in this quarter compared to 89.8% in the previous corresponding period.
  
• A total of 50,279 sqm of space was successfully renewed or leased in the first quarter. The weighted average lease term to expiry of A-Reit’s portfolio remained stable at 6.3 years.
  
• In anticipation of rising global interest rates, A-Reit has continued to hedge a large portion of its interest rate exposure through interest rate swaps. As at 30 June 06, 81% of debt has been foxed for a remaining weighted average term of 4.1 years.

Extracts fm Credit Suisse report dated 26-Jun-06,

Expecting an 'inheritance' in July?

• The recent volatility in A-REIT’ share price warrants a second look, we believe. With the review of JTC and Ascendas expected to be announced in July, A-REIT could stand to acquire assets from JTC should the review propose divestment of assets.
  
• Of the portfolio to be divested, JTC’ three business park properties fits A-REIT’ portfolio best. We estimate that each business park could be worth at least S$300 mn.
  
• Even if A-REIT fails to acquire these assets, there is at least another S$900 mn of assets that can be acquired from Ascendas and other unrelated third parties in Singapore. With that, A-REIT is on track to reach its AUM target of S$5 bn by the end of 2010.
  
• We raised our AUM assumptions to S$3.7 bn by FY07 and S$4.3 bn for FY08, but have reduced our earnings estimates by 6-7% for FY07-08 due to a more conservative 6-month contribution compared to a full year contribution previously.
  
• We maintain our NEUTRAL rating and S$2.15 target price.

Extracts fm CIMB Report dated 16-Jan-06,

Bigger and better

• The 9M06 results were in line, and made up 75% of full year net profit. Areit reported a good set of results with 3Q06 gross revenue surging 82% yoy to S$61m and distributable net profit up 81% to S$38m. Distribution per unit (DPU) rose 25% yoy to 3.01cts on new acquisitions (28 new buildings in Jan-Dec 05) and a stable existing portfolio. DPU rose 3% qoq as its portfolio grew from 45 to 59 buildings. Areit has maintained occupancy of its portfolio and multi-tenanted buildings at about 95% and 90% respectively in the past year. 
  
  
• Raised hedging reduces impact from rising interest rates. Areit hedged 77% (69% in 2Q06) of its total debt of S$844m for a weighted average term of 4.1 years. This includes a two-year interest rate cap at 2.5% for S$127.5m (15% of outstanding debt). Average all-up funding cost is 3.27%. Current gearing is 34.2% (including deferred payments) of Areit’s deposited property. Interest cover remains healthy at 7.6x. Gearing up to the optimal 45% will mean increased debt funding capacity of about S$500m for future acquisitions. 
  
  
• Outlook stable, new sources of acquisitions. Areit has completed a total of S$532m of acquisitions in the last nine months, with another S$94m of deals to be completed in the next six months. Organic rental income should be stable with possible growth from increased demand for higher-specifications industrial space with a recovering Singapore economy, while JTC’s intended divestment of some 28m sf of industrial space may spell buying opportunities. We expect Areit to acquire another S$600m of properties over FY07-10, at 6.8% yield. We believe a positive decision to acquire overseas assets will open up more opportunities, for which Areit can harness parent Ascendas’ expertise (over 10 years' track record in the Philippines, China and India). 
  
  
• Interest rates may have run their course, yields attractive. Areit has rebounded more than 10% from a low of S$1.88 in Nov 05 as long-term bond yields stabilised at 3.2-3.3%. We maintain our earnings forecasts and DDM-based target price of S$2.33, based on a 6% cost of equity assumption. Areit currently trades at a 5.5% distribution yield based on its estimated DPU of 11.6cts for FY06, and 6.2% for FY07; still the highest yielding local REIT.

ASCENDAS Real Estate Investment Trust (A-Reit) yesterday declared distributable income of 3.01 cents per unit for Q3 ended Dec 31, 2005. This is 25 per cent higher than a year ago.

Distribution per unit (DPU) for the nine months ended Dec 31, 2005, was 8.76 cents, which was 3 per cent higher than what the Reit's manager had forecast just three months earlier. The Q3 performance was driven mainly by improved leasing as well as contributions from acquisitions.

A-Reit owns 60 properties across Singapore with a book value of $2.6 billion. These span business park and science park properties, light industrial properties and logistics and distribution centres.

The trust said that the improved economy and business outlook for this year will provide a more conducive operating environment for A-Reit. The manager of A-Reit expects to deliver a DPU exceeding the 11.37 cents forecast for the full-year ending March 31, 2006, based on assumptions stated in a Sept 2005 circular.

In its results statement yesterday, A-Reit also said that JTC Corp's announcement in November that it will divest part of its industrial property portfolio is expected to give the trust an opportunity to make further yield-accretive acquisitions. 'Secondly, the proposed divestment signals JTC's intention to focus solely on its role as a regulator rather than a participant in the industrial market, which is also positive for A-Reit,' it added.

As at Dec 31, 2005, A-Reit has hedged about 77 per cent of its total debt of $844 million for a weighted average term of 4.1 years. This includes a two-year interest rate cap at 2.5 per cent for $127.5 million (15 per cent of outstanding debt). A-Reit's weighted average funding cost is 3.27 per cent. The aggregate leverage (including deferred payments) stands at 34.2 per cent of the trust's deposited property as at Dec 31, 2005. The manager expects A-Reit to maintain a long-term optimal gearing ratio not exceeding 45 per cent. Assuming an optimal gearing limit of 45 per cent, A-Reit will have debt funding capacity of about $500 million available to fund future acquisitions.