AREIT – UOBKH
3QFY08: Fewer acquisitions, more development projects
Rising rental rates for Science & Business Parks and Hi-Tech Industrial sectors. Gross revenue expanded 12.9% yoy to S$80.2m in 3Q08. Overall occupancy reached an all-time high of 98.7%, compared to 96.1% last year. This is driven by demand for office space outside the Central Business District (CBD) and multinational companies expanding their operations in Singapore. A-REIT announced DPU of 3.56 cents for 3QFY08, an increase of 11.3% yoy. This will be paid on 29 Feb 08.
A-REIT has renewed and signed new leases including expansion for total net lettable area of 505,182sf during the quarter. They represented 6.8% of net lettable area for multi-tenanted buildings. Renewal rental rates for Science & Business Parks and Hi-Tech Industrial sectors were 46.1% and 71.5% higher compared to previous transacted rates. New tenants include Pfizer at The Capricorn. A-REIT also completed the acquisition of Goldin Building, a logistics building at Pioneer Walk, for S$22.5m.
Positive impact from rental reversion. A-REIT has a portfolio of 79 properties with average lease to expiry at 6.2 years. It benefits from the surge in office rental within the CBD. This has forced many companies to relocate backend operations to suburban locations. Only 1% of its leases will expire this year. Positive rental reversions will knick in subsequently with 42.7% of its leases expiring from 2009 to 2011. 52.8% of the leases expiring are in the high-growth
Science & Business Parks and Hi-Tech Industrial sectors.
More development projects. A-REIT has four development projects worth S$338m. HansaPoint@CBP, a partial built-to-suit development project, has achieved 100% pre-committed occupancy and is expected to be completed by Feb 08. The other three development projects are also substantially precommitted to tenants such as Zuellig Pharma and Citigroup. Development projects provide yield of 8-9% compared to yield of 6-6.5% from acquisitions.
Maintain BUY. A-REIT’s share price has retraced to a more attractive level and provides annualised distribution yield of 6.5%, among the highest for S-REITs.