Overall portfolio occupancy remained resilient at 97.1%. There was slight erosion for occupancy at MTB from 95.3% at Mar 09 to 94.0% at Jun 09. However, occupancy for STB was almost unchanged at 97.1%. The weighted average lease to expiry for the portfolio was five years, which provided resilience.
Growth from built-to-suit development projects. A-REIT will develop a nine-storey hi-tech industrial building with a gross floor area of 353,600sf at Kim Chuan Road at a cost of S$175.4m. Singapore Telecommunications will lease the completed building for an initial tenure of 20 years with annual rental escalation and an option to renew for another 10 years on expiry. The building is expected to be completed and operational in 2010.
Minimal refinancing risk. A-REIT has secured S$200m three-year unsecured revolving credit facility to refinance Commercial Mortgage-Backed Securities (CMBS) of S$300m due in Aug 09. It has incorporated a S$1b medium term note programme. The first issuance of S$150m of two-year note was completed in May 09 and was utilised to reduce reliance on shortterm revolving credit facilities. A second issuance of S$125m is in the process of finalisation. The next major refinancing is a term loan of S$300m due in Mar 10.
We maintain our earnings forecast as 1QFY10 results were in line with our expectations. Maintain BUY. Our target price is S$1.93 based on a dividend discount model (required rate of return: 7.7%; growth: 2.5%).
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