Financial Performance
AREIT’s Gross revenue increased 5.3 % y-o-y, due in part to the full quarter contribution from the UK Logistics Portfolios acquired in August 2018 and October 2018. Net property income also increased 6.8%.
Distribution per units (DPU) increased 2.3% to 7.983 cents after taking into consideration enlarged number of units in issue.
Divestment
AREIT divested 8 Loyang Way 1. The property had about 33 years of remaining lease with an NLA of around 14 k sqm. It was acquired in 25 million in 2008 and divested at 27 million, with a Net Property Income impact of 1.9 million.
Acquisitions
AREIT plans to develop an 8 level office in Melbourne CBD, in the Monash Technology Precinct. The 11k sqm of freehold land will be acquired and developed at a total cost of AUD 110 million. Once completed in 2Q 2020, Nissan will lease 65.2% of the space and the property will serve as Nissan’s head office and training centre.
Property Performance
AREIT’s exposure is mainly in Singapore with the rest in Australia and United Kingdom. In terms of geography, the percentage of AREIT’s exposure in terms of square metres are below:
| Geography | Square Metre | Percentage |
| Singapore | 3,003,420 | 69% |
| Australia | 810,536 | 19% |
| United Kingdom | 509,907 | 12% |
| 4,323,863 | 100% |
Portfolio occupancy remain relatively high at 91.0%, despite some pockets of weakness. While occupancy has remained strong at 97.7%, Australia has been seeing weakening occupancy at 95.4%. Out of the three countries that AREIT operates in, Singapore remains one of the weakness, with an occupancy at 88.1%.
Even though there was no rental revision info provided for Australia and United Kingdom 2Q FY 2019, the first quarter saw a 9.9% yoy decline in revenue for the Australian Logistic Properties, suggesting significant weakness in them.
On a more positive note, AREIT managed to get 2-3% rental reversion for the Singapore property portfolio, even though portfolio occupancy has been considerably weaker.
Lease expiry is also a potential source of weakness. AREIT has 22% of leases expiring in 2020 and about 50% due in the next three years. Hence, operationally the huge percentage of leases expiring can be a considerable risk. This is because the rental index has come off the highs of 2015 and there is a large supply of industrial properties coming online in 2020.
Leverage
Aggregate leverage increased to 36.2% from 33.2%, but this is within the REIT Leverage Ceiling of 45%.
Conclusion
Areit has a good quarter however, there are some potential points of weakness such as the decreasing occupancy, as well as the increase in supply of industrial properties.
