Performance
A-REIT Announcement of Results for the Third Quarter Ended 31 December 2009
Financials Archive
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Income statement
(3Q FY 09/10 vs 3Q FY08/09)
The following items have been included in arriving at net income:
- With effect from 19 November 2007, the Manager has elected to receive 20% of the base management fee in units and 80% in cash for all properties.
- Finance costs for the 3Q FY08/09 and FY09/10 represent interest expense on loans, interest rate swaps and amortised costs of establishing debt facilities (including the Medium Term Note, Transferrable Loan Facilities and Committed Revolving Credit Facilities). Borrowing costs also include the fair value/accretion adjustments for deferred payments and refundable security deposits (3Q FY09/10 – charge of $0.1 million, 3Q FY08/09 – charge of $0.1 million).
- Net change in fair value of financial derivatives relates to changes in the fair value of interest rate swaps which are not designated as hedging instruments in accordance with FRS39.
- Non-tax deductible expenses relate to units issued to the Manager in part payment of its management fees, accretion and fair value adjustments required under FRS39, commitment fee paid on undrawn committed revolving credit facility and other non-tax deductible or non-taxable items. In addition, 3Q FY09/10 non-tax deductible expenses included net changes in fair value of financial derivatives which are not designated as hedging instruments in accordance with FRS39.
- 91 properties as at 31 December 2009 vs 88 properties as at 31 December 2008.
nm denotes "not meaningful"
Balance Sheet
together with comparatives as at the end of the
immediately preceding financial year
- Investment properties under development decreased by 99% mainly due to the completion of the development projects at Changi Business Park, Airport Logistiscs Park of Singapore and the completion of construction at 23 Kim Chuan Road which is currently undergoing User Acceptance Test.
- Other assets as at 31 December 2009 include other receivables and assets under development that will be transferred to finance lease receivable upon commencement of lease.
- Decrease in term loans and short term interest bearing borrowings include the repayment of a $300 million Commercial Mortgage Backed Securities loan ("CMBS") in August 2009 and repayment of short term borrowings. With repayment of the above CMBS, 14 properties have been discharged from the mortgage to Emerald Assets Limited ("Emerald Assets").
- Details of borrowings & collateral
Two term loans of $350 million and $395 million ("Medium Term Notes", also known as CMBS) granted by a special purpose company, Emerald Assets are outstanding as at the date of balance sheet. As collateral for the credit facilities granted by Emerald Assets, the Trustee has granted in favour of Emerald Assets (after repayment of the $300 million CMBS as referred to in Note (c)) the following:
- a mortgage over the 59 properties in the A-REIT portfolio;
- an assignment and charge of the rental proceeds and tenancy agreements of the above mentioned properties;
- an assignment of the insurance policies relating to the above mentioned properties; and
- a fixed and floating charge over certain assets of the Trust relating to the above mentioned properties.
A-REIT established a $1 billion Multicurrency MTN Programme ("MTN2009") in March 09. As at the balance sheet date, $275 million of fixed rate notes have been issued. Of which, $150 million will be due in April 2011 and the remaining $125 million will be due in July 2013. The notes bear a fixed interest rate payable semi-annually in arrears. In addition, A-REIT has various bilateral banking credit facilities with varying degree of utilization as at the balance sheet date.
As at 31 December 2009, all of A-REIT's interest rate exposure is fixed. Overall weighted average cost of funds as at 31 December 2009 is 3.9% (including margins charged on the loans and amortised annual costs of the Medium Term Notes, Transferrable Loan Facilties, and Committed Revolving Credit Facilties).
The debts fixed through interest rate swaps and fixed coupon rate have a weighted average remaining term of 2.6 years. The interest rate swaps have terms of from less than 1 year up to 6 years and the notes issued from MTN2009 are due in approximately 2 to 4 year's time. The effective hedge portion of changes in the fair value of interest rate swaps were recognised in statement of movement in unitholders' funds. The fair value changes of the interest rate swaps which are not designated as hedging instruments in accordance with FRS 39 were charged to the Statement of Total Return.
Review of the Performance
Review of Performance 3Q FY 09/10 vs 3Q FY 08/09
nm denotes "not meaningful"
- The Proforma DPU for 3Q FY08/09 has been calculated using income available for distribution and the applicable number of units, which takes into account the units issued under the placement in January 2009 and August 2009, preferential offerings in February 2009 and units issued in lieu of the 20% of the base management fee in May 2009 and December 2009.
Gross revenue increased by 3% mainly due to additional rental income from the completed development projects Expeditors Building and Plaza 8 in September 2009 which started to recognize revenue in October 2009. 23 Kim Chuan Road has just obtained TOP in December 2009 and is currently undergoing User Acceptance Test. No revenue has been recognized yet.
Property expenses decreased by 16% due to one-off property tax rebate and land rental rebate, totalling $1 million, vacancy refund of $0.6 million as well as lower utilities charges by $2.5 million. Excluding the effect of one-off property tax rebate and land rental rebate, Property operating expenses would have been S$27,772K instead of $23,672K.
Net finance costs decreased by 4% due to lower borrowings offset by increase in the cost of borrowings.
Net change in fair value of financial derivatives relates to the portion of changes in fair value of interest rate swaps which are not designated as hedging instruments in accordance with FRS39.
Income available for distribution were higher than the comparable period last year by 13%. The higher net income is mainly due to additional income from the properties completed after December 2008 and lower property expenses.
Review of Performance 3Q FY 09/10 vs 2Q FY 09/10
nm denotes "not meaningful"
- DPU for Q3 FY09/10 takes into account the units issued under the placement in January 2009 and August 2009, preferential offerings in February 2009 and units issued in lieu of the 20% of the base management fee in May 2009 and December 2009.
Property operating expenses increased by 12%, mainly due to higher ad-hoc maintenance and conservancy costs of approximately $0.8 million and higher utilities expenses of $0.8 million due to rising cost of energy.
Net finance costs increased by 4%, mainly due to higher borrowings and cost of borrowings.
Net change in fair value of financial derivatives relates to the portion of changes in fair value of interest rate swaps which are not designated as hedging instruments in accordance with FRS39.
Net income was 13% higher than 2Q FY09/10 mainly due to lower portion of the changes in fair value of interest rate swaps which are not designated as hedging instruments in accordance with FRS39. Income available for distribution was 1% lower than 2Q FY09/10 mainly due to higher property expenses.
Commentary
Ministry of Trade & Industry (MTI) advance estimates indicate that GDP expanded by 3.5% y-o-y in 4Q 2009, following an expansion of 0.9% in 3Q 2009. On a seasonally-adjusted q-o-q annualized basis, real GDP declined by 6.8% in 4Q 2009 compared to a growth of 14.9% in 3Q 2009. For 2009, Singapore economy is estimated to contract by 2.1%.
The contraction in 4Q 2009 is due to a 38.4% decline in the manufacturing sector, contributed primarily by contractions in the output of the biomedical manufacturing and transport engineering clusters. However, the electronics, chemicals and precision engineering clusters posted positive growth.
On a y-o-y basis, non-oil domestic export grew by 8.7% in November 2009, compared to the 6.2% decrease in the previous month, demonstrating continuing signs of improvement in the Singapore economy.
According to URA's 3Q 2009 statistics, rates of fall in industrial property prices and rentals have moderated compared to the rates of fall in 2Q 2009 as business sentiments improved. Prices fell by 2.1% q-o-q, compared to a decline of 4.5% in 2Q 2009 and rental rates declined by 3.1% in 3Q 2009 compared to a 5.6% decline in the previous quarter. Average occupancy rates declined marginally from 92.2% in 2Q 2009 to 91.9% in 3Q 2009.
Based on a CBRE report for 3Q 2009, average monthly rent for Hi-Tech space fell 5.4% to $2.65psf ($2.80psf in 2Q 2009) whilst average monthly rent for factory space and warehouse space remained at $1.40psf and $1.35psf respectively. According to URA's statistics, business park rents for 3Q 2009 is $3.24psf, down by 2.7% from 2Q 2009.
Outlook for the financial year ending 31 March 2010
Although global economic developments suggest that most countries around the world are now turning the corner, economic recovery is not expected to be smooth sailing. Growth momentum thus far is mainly a result of targeted fiscal stimulus measures and inventory cycle adjustments and these factors may taper off in 2H 2010. Although Asia is likely to continue to see positive growth rates, a sluggish recovery in demand in the advanced economies may moderate Singapore's growth prospects in 2010. MTI expects Singapore's economic growth in 2010 to be between 3% to 5%.
For the balance of FY2009/10, about 97.9% of A-REIT's portfolio revenue is committed with a weighted average lease to expiry of about 4.8 years. The diversified nature of A-REIT's portfolio over five segments of the industrial property sector and a good mix of long and short term leases provide certain degree of predictability of the earnings for its portfolio. The Manager expects to be able to deliver a return that is in line with market expectations.
In the next financial year, about 15.3% of revenue is due for renewal, the outlook of which will largely depend on the sustainability and strength of the global economic recovery.