A-REIT : Phillip
Continuing to Perform
3Q07 Results. 3Q07 net income available for distribution increased 6.8% YoY to S$41.0m. 3Q07 DPU of 3.2 cts increased 6.3% YoY and 1.3% QoQ. Annualized DPU based on 9 months to 31 Dec 06 works out to be 12.6 cts, up 8% YoY. Gross revenue was up 16% YoY mainly due to additional rental income from the following completed acquisitions: Steel Industries, Hamilton Sundstrand, Thales, Aztech, Noel Corporate, 138 Depot Road and 150 Ubi, Sembawang Kimtrans, Logistics 21 and LabOne. As of 31st Dec 06, gearing worked out to be 39.5% with a debt of S$1,126m and interest cover ratio of 5.7x. NAV per unit of 136 cents translates to a current P/B of 1.95x. The ex-date of the distribution of 3.2 cts per unit is on 24 Jan 07 and will be paid out on 28th Feb 2007.
As of 31st Dec 06, weighted average lease term to expiry was 6.3 years based on 68 properties. Portfolio occupancy increased to 96.1% with multi-tenanted buildings occupancy (54% of portfolio) at 93.1%. Concentration risk from top 10 tenants dropped from 35.7% at 31st Dec 05 to 33.8% at 31st Dec 06, representing a well-diversified portfolio.
Investment highlights. AREIT has recently completed the purchase of two properties, Super Industrial Building and 26 Senoko Way, for S$49.0m, funded by bank debt. Asset enhancement is ongoing for Alpha building, and has been completed for Telepark. Courts Megastore has been completed on schedule in Dec 06 with lower than expected development cost. In summary, S$211m worth of acquisitions has been completed year-to-date and S$214m worth of investments as shown in Fig. 1 is in progress for completion.
Singapore Industrial Property. According to URA, prices of multiple-user factory space rose 1.1% QoQ in 3Q06 with rentals of multiple-user factory space remaining unchanged. Prime industrial space increased QoQ at a range of 1.2% to 3.8%. The best performer goes to high-tech space which increased 7.6% QoQ for the ground floor and 4.9% QoQ for upper floor, backed by the improving manufacturing sector, research & development firms and government injection of S$1.5 billion into the biomedical sciences. Results have been within our expectation and we believe that demand for high-tech space will continue to remain high and drive rental rate up.
Valuation. 12 acquisitions and developments were announced in financial year to date amounting to S$425m, exceeding our initial assumption of S$400m. We revise our projection for acquisitions upwards to S$500m worth of acquisitions for FY07 as well as FY08. Interest rate decrease over the last quarter has also allowed us to decrease our required rate of return (WACC) to 6.8%.
Using DDM with a growth rate of 2.5%, we increase our fair value to S$2.74, representing a FY07F yield of 4.66% and a healthy spread of 1.6%. FY07F P/NAV using our fair value is 1.94x but we believe that this will decrease after AREIT revalues its properties for FY07. We maintain Hold on AREIT.