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A Look At Industrial Trusts, Post Earnings (CIT and A-REIT)
Tradeable, Tradeable Ideas | 22 January 2014
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By: Justin Harper
Articles (23) Profile

In otherwise listless trading, penny stocks continue to enjoy the limelight as traders shun the blue chips. The Fed’s unwinding of its asset-buying programme has been softening large cap stocks and keeping many away from the market as the theme remains cautious.

But IPOs continue to tick over in Singapore while penny stock speculators look for quick profits. It feels as if the market hasn’t yet got going this year, and with Chinese New Year on its way, the local market may not spark into life just yet.

As the FY13 earnings season begins, we look into two trusts that have just released their results and have attracted relatively good reviews from analysts.

Top marks for Cambridge
Cambridge Industrial Trust (CIT) recently reported 4Q13 earnings which saw revenue down 3.1 percent year-on-year, but income up 1.8 percent.

Behind these numbers, CIT has been building a defensive balance sheet, by entering into $250 million worth of interest-rate swaps to fixed interest rates, with all-in interests costs reduced to 3.6 percent per year, down from 3.9 percent.

Through this exercise, CIT is expected to save about $7 million in interest over FY14. CIT also has a healthy balance sheet currently, with a leverage ratio of 28.7 percent and no major refinancing due till June 2016.

As a result, analysts feel CIT has become a stronger REIT and is well positioned for any acquisition opportunities. Looking ahead, CIMB expects CIT to divest two or three non-core assets while completing two more acquisitions.

Another plus point is CIT’s occupancy rate which remains high at about 97 percent. But one negative is the resignation of CEO Chris Calvert who left without a clear successor. CIMB expects another proactive year ahead, in terms of CIT managing and repositioning its portfolio, coupled with interest savings and a strong balance sheet.

The average upside potential among analysts is for a 10 percent rise in the share price.

Ascendas on the ascendancy?
Ascendas REIT (A-REIT) recently announced that distributable income from the trust was $85.1 million, up 4.9 percent year-on-year. This growth was mainly due to higher rental income from The Galen with other contributions from Nexus@one-north and AREIT City@Jinqiao.

However, A-REIT’s portfolio occupancy rate fell slightly from 90.1 percent in September 2013 to 89.7 percent, due to the non-renewal of tenants.

Despite this, A-REIT should see leasing demand remain in positive territory as it reduces its lease expiries. Plus the trust has $93.6 million worth of development and asset enhancement works on the go. These are scheduled for completion in 1Q14-2Q15, serving as buffers for downside risk.

Included in these projects are asset enhancement works to The Alpha, which are expected to be completed by March this year.

Another big factor in the trust’s attractiveness are some planned changes to its fee structure. One change would reduce the fees payable to the REIT manager in favour of unitholders with effect from FY15. In addition, A-REIT will make distributions on a semi-annual basis to align with the payout from its China properties.

On the downside however, industrial REITs face some risks from the possible hike in interest rates and any recalibration of over-inflated property prices. Other challenges include a fragile global macroeconomic outlook and ample supply of industrial property in the pipeline.

Iskandar Malaysia could also pose competition in the medium term, especially for lower value-added industrial activities within Singapore.

The average upside potential is for a 10 percent rise in the share price.

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Justin Harper is an experienced financial journalist who previously worked on the business desks of the Daily Mail, The Telegraph and Financial Times Business in London.

Please click here for more information about this author.

ESR-REIT  0.525 +0.005 +0.96%   
Business: REIT established with the objective of investing in real estate assets used mainly for industrial purposes.

Insight: Jan-19, FY18 gross revenue rose 43% and NPI rose 4... Read More
Ascendas REIT  3.120 -0.02 -0.64%   
Business: Co invests in the real estate markets of Singapore and Australia.

Insight: Apr-19, FY19 gross revenue and NPI inched up 2.8% ... Read More


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