Towards Financial Freedom
AAREIT - T.O.P Way Ahead of Schedule
AAREIT announced that it received the Temporary Occupation Permit (TOP) for Phase Two of 20 Gul Way on 7 May. Although we had expected early completion for this phase, the announcement is a pleasant surprise as it beats our expected date by two months. We maintain our positive view on AAREIT as it is set to announce plans for Phase Three of 20 Gul Way in the near future.
- Additional income due to earlier-than-expected completion. Phase Two of the 20 Gul Way development comprising c. 488,247 sq ft has been pre-leased to CWT Limited for up to five years, with an annual escalation of 2%. The TOP for this development was obtained approximately seven months ahead of schedule and within budget. Due to the early completion, rental payments will commence on 7 July, giving AAREIT two extra months of income (c. SGD1.1m above our previous forecast).
- Unlock value by transforming its properties. With the completion of both phases of 20 Gul Way, the property management company's annual rental income is expected to increase from SGD3.6m (as at 31 March 2011) to SGD16.3m, which will translates into an initial net property income yield of 8.1%. Such endeavours have successfully demonstrated the trust's ability to reposition itself and unlock value by transforming 20 Gul Way into the largest and newest asset in its portfolio.
- Awaiting plans for Phase Three. Recently, AAREIT announced that the Urban Redevelopment Authority (URA) has given approval in principle to the manager's application to rezone the plot ratio at 20 Gul Way from the existing 1.4x to 2.0x. The approval allows it to develop a further 497,000 sq ft of gross floor area at the property. As Phase Two is now completed, we expect AAREIT to announce plans for Phase Three of the development in the near future.
- Strong execution of development projects. Although the additional income will have a minimal impact (c.1.6%) on the trust's FY14 net income, we view this piece of news positively as it demonstrates AAREIT's capability in undertaking development projects. In view of this, we maintain our BUY rating on AAREIT, with an unchanged SGD1.90 TP, as we expect smooth execution of its development projects in the upcoming years.
Source: OSK
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