UPDATE ON LEASE MANAGEMENT AT 27 PENJURU LANE

-        Reduced lease expiry risk 
-        Improved rental returns
-        Strong demand for industrial property

AIMS AMP Capital Industrial REIT (AAREIT) announced this morning that a portion of its leases due for expiry in FY13 has been successfully extended to FY16 and FY18. This pertains mainly to its asset at 27 Penjuru Lane. The underlying leases due to expire in FY13 has now come off from 28% to 18%.

We also understand that the sub-tenancy agreements were secured at a weighted average 7.5% higher than the current master lease terms, implying positive rental reversion. Management is currently in negotiations to renew the remaining 45% underlying leases. For the rest of 2012, it expects demand for high quality industrial property to remain strong.

YTD, AAREIT’s unit price has outperformed the S-REIT sector, rising by 27.0% as compared to industry average of 17.4%. The REIT is currently trading at 0.9x P/B and offers a consensus FY13F yield of 9.4%. We do NOT have a rating on the stock.

Source: OCBC Investment Research (3 Jul 2012)