Change in financial year-end from 31 March to 31 December
The current financial year is nine months from 1 April 2019 to 31 December 2019 (“FY2019”). Regular distributions to Unitholders of AREIT shall be for the six months ended 30 September 2019 and three-month period ended 31 December 2019. Thereafter, the regular distributions shall be made on a semi-annual basis for every six months ending 30 June and 31 December each year.
Divestment of No. 8 Loyang Way 1 (Light Industrial) for S$27.0m at 14.4% premium to market value and 8.0% premium to purchase price is expected to be completed in 2Q19.
Businesses are likely to remain cautious given the weak manufacturing sector outlook and slowing GDP growth in Singapore. However, the future is not as bleak for AREIT given their low expiries of 9.3% of SG GRI for FY19 (FY20 19.7%). Industry occupancy has held steady at 89.3% for the past two quarters and the new supply of industrial space coming on to the market in FY19/20 (which represents 1.6%/3.6% of existing supply) is already 90%/39% pre-committed. This should provide industrial rents support amidst the softer economic outlook.
Upgrade to ACCUMULATE with a higher target price of $3.31 (prev $2.88).
Our higher target price is mainly due to the lower interest rate assumption and higher revenues forecasts from the persistent signing of above-market rents. Lower cost of equity of 6.6% has been applied in our DDM calculations (prev. 6.9%).