Chairman's Message (Extracted from Annual Report 2009)
"I am glad to report a very successful year in which the
strategies pursued by the Manager have delivered stable
and predictable distributions for the Unitholders of A-REIT."
FY2008/09 was challenging with the
implosion of the global financial
market and its consequent impact
on economic activities as aggregate
demand rapidly declined in the major
developed markets. Singapore, being
one of the world's most open
economies, was not spared the
tumult. However, A-REIT continued
to focus on its core competencies
and re-calibrated its three-pronged
strategies to adapt to the changing
market conditions and delivered a
commendable set of financial results
for the year.
On behalf of the Board, I am pleased
to present A-REIT's 7th annual
report for the financial year ended
31 Mar 2009. I am glad to report a
very successful year in which the
strategies pursued by the Manager
have delivered stable and predictable
distributions for the Unitholders of
A-REIT. This achievement is
remarkable especially in the light of
the global economic turbulence in
the second half of the financial year.
A-REIT's distribution per unit (DPU)
increased by 7.4% to 15.18 cents as
compared to 14.13 cents in the
previous financial year after taking
its performance fees in cash instead
of units. The Manager opted to
receive its performance fees in cash
in order to close the gap between
earnings per unit and DPU, i.e. to
avoid paying distribution out of
capital and also not to further dilute
Unitholders' interest as units are
currently trading at a discount to
its NAV. The portfolio grew to 89
properties versus 84 properties last year, and total assets were S$4.5bn
as at 31 Mar 2009, up from S$4.2bn
a year ago, an increase of about 8%
despite a devaluation of S$115m on
the portfolio upon its regulatory
annual revaluation.
A Balanced Portfolio Performance
As at 31 Mar 2009, overall portfolio
occupancy stands at a healthy 97.8%,
with 95.3% occupancy for multitenanted
properties. The portfolio
continues to see positive rental
reversion in renewal rates across all
sub-sectors as a result of active
leasing management and the market
rental rates being higher than
existing rental rates of those leases
in A-REIT's portfolio due for renewal.
This is particularly true for the
Business & Science Parks and Hi-
Tech Industrial sectors. However,
due to the deteriorating economic
situation, market spot rates have
been declining and the Manager has
shifted its strategic focus to
"Maintaining Occupancy, Retaining
Customers". As a result, positive
rental reversion, if any, for FY 2009/10
is expected to be relatively muted
compared to the last financial year.
The Manager's disciplined
investment strategy has resulted in
enhanced returns per investment
dollar from development activities
and selective quality acquisition of
income producing properties which
resulted in a healthy and strong
balance sheet. During the financial
year, A-REIT completed two
acquisitions worth S$271.8m and
completed three development projects worth about S$174.5m.
The three development projects:
Pioneer Hub, 15 Changi North Way
and 3 Changi Business Park
Crescent, were completed on
schedule and within budget and
achieved 100% occupancy on
completion. Since commencing its
development strategy in 2006,
A-REIT has achieved an unrealized
capital gain of $109.7m
(approximately 35.2% over
development cost) on the six
development projects undertaken
so far.
In addition, A-REIT commenced
construction of a 100% precommitted
built-to-suit logistics
facility at the Airport Logistics Park
located in the east of Singapore.
A multi-tenanted business park
building cum amenity centre is also
currently under construction at
3 Changi Business Park Crescent.
These projects are expected to be
completed in 4Q2009. In May 2009,
A-REIT announced a built-to-suit
development of a Hi-Tech industrial
property for Singapore
Telecommunications Limited. This
development is expected to be
completed in 1Q2010.
A-REIT will continue to pursue quality
and sustainable yield accretive
acquisitions and, at the same time,
engage in development (especially
built-to-suit) opportunities for
enhanced returns.
Balancing the Finances
We persist in proactive capital and
risk management of A-REIT's
finances in order to optimize its
capital structure. When the market
turned abruptly in the second half
of the financial year, a healthy capital
structure became the focal point of
the investing community.
A 3-year S$200 m committed credit
facility was secured in October 2008
to increase A-REIT's funding capacity.
In Jan 2009, A-REIT launched an
equity fund raising exercise and
raised approximately S$408 m (at a
7% discount to the adjusted volume
weighted adjusted price at the day of
the launch) to fund committed
development projects, as well as to
to reduce borrowings. Aggregate
leverage as at 31 Mar 2009 was 35.5%
with 90.0% of A-REIT's total debt
hedged into fixed rate for the next
3.4 years at an all-in cost of
borrowing of 3.67%. However,
refinancing cost and cost for new
borrowings are expected to be higher
over the next 12 months.
To further diversify A-REIT's sources
of funding, a medium term note
(MTN) programme was established
and issuance of a 2-year note for
S$150m was completed in
Apr and May 2009.
The proactive management of
A-REIT's capital structure has
enabled us to further enhance our
balance sheet. We will continue to
balance between certainty in our
capital structure and the cost of
debt to attain optimal returns for
our Unitholders.
Looking Ahead
The outlook for the global economy
is uncertain as a result of the
synchronized economic slowdown
of all major developed markets
originating from the collapse of the
US financial industry. Barring any
unforeseen surprises, the Manager
aims to maintain the current level
of net property income for A-REIT
in the coming financial year.
Building on A-REIT's position as the
leader in business space and
industrial properties, we will
continue to maintain a disciplined
investment approach, proactive asset
management and prudent capital
and risk management strategies to
continue to offer stable and
predictable distributions through a
portfolio of diversified tenants from
a broad mix of industries.
In Appreciation
A-REIT's success would not have
been possible without the concerted
effort of many parties. Firstly,
I would like to thank my fellow
Board members for their invaluable
advice and contributions throughout
the year.
I would also like to express my
gratitude to our tenants and
business partners for their
unwavering support. I also would
like to extend my appreciation to
the A-REIT team for their dedication
in pursuing the business strategies
that the Manager has set out. Last
but not least, I would like to thank
you, our Unitholders, for your trust
and confidence in us.
With continued focus on our core
strategies, I am confident that we
will be able to overcome the
challenging business environment
and continue to deliver another year
of stable performance.