Atrium REIT is an industrial focussed REIT based in Malaysia with 6 industrial properties across Malaysia. They are one of the few REITs which remain fairly resilience despite the COVID-19 outbreak. In one of our previous post, we have shared on a few key things you need to know of its FY19 performance.
Ever since then, a number of events have taken place. The prominent one would be the COVID-19 outbreak. In this post, we will be looking into a few key things you need to know of Atrium REIT 3Q20 performance.
Hopefully, you will gain greater insights into Atrium REIT 3Q20 performance and key events.
1) Completed acquisition of property from Lumileds in October 2020
On 11 November 2019, Atrium REIT made an announcement on its proposed acquisition of a property from Lumiled for MYR 50 mil. In FY20, this acquisition has completed when Atrium REIT signed the SPA with Lumileds on 22 October 2020. The newly acquired property is entered and signed with Lumileds through a sales and leaseback arrangement. Which upon completion will be leased by Lumileds over a term of 15 years.
Similar to Atrium Bayan Lepas 2, this leased in entered via a triple net basis arrangement. Which is a plus to Atrium REIT as it would mean that Lumileds would bear most of the property expenses.
This acquisition is great for two reasons. Firstly, this acquisition entered via a triple net lease arrangement will reduce the expenses fluctuation. Secondly, Atrium REIT will be guaranteed rental income for the next 15 years provided that Lumileds do not default.
2) Conditions in regards to the acquisition with PNB fully met
The second update is in regards to the other proposed acquisition which was announced on 27 December 2019. This relates to the acquisition of a single storey factory building and ancillary area from Permodalan Nasional Berhad.
On 26 November 2020, Atrium REIT has met all the conditions precedent set out in the SPA. This would mean that the sales and purchase agreement is now unconditional.
3) Update on existing properties
The next aspect we will be looking into is its existing properties performance. Excluding the two properties shared in the last two points, Atrium REIT currently owns 6 industrial properties. These properties were fully leased out and have been enjoying a 100% occupancy rate historically.
If we were to look at its lease expiry as at December 2019, there are a few leases which are due for expiry. These are concerning both Atrium Puchong and Atrium USJ.
This has been a key area investor is keeping a close lookout on. A non-renewal would mean that the property will be left vacant. Indirectly affecting investors return.
- Atrium Puchong: The existing tenant, FM Global Logistics has informed that they are not renewing the tenancy upon its expiry on 31 January 2021. Nevertheless, the REIT manager has managed to secure a new tenant, Lazada Express (Malaysia). The lease with Lazada is signed for 3 years with an option to renew for another 2 years.
- Atrium USJ-Block B: CJ Century Logistics has stated their intention to renew the lease.
Occupancy rate as at 30 September 2020 remains at 100% which is a plus given the economic condition. In face,the REIT manager has shared that they expect the occupancy rate to remain at 100% for the rest of FY20.
4) Net Rental Income Almost Doubled compared to the preceding 9 months in FY19
In term of its financial performance, Atrium REIT has performed fairly well. Its net rental income increased from MYR13.3 mil in 9M19 to MYR 22.9 mil in 9M20. This is a fairly solid performance given the uncertainty of the COVID-19 outbreak. They are one of the few REITs in Malaysia which has a positive performance in 2020.
The commendable performance is mainly contributed by the full-year contribution of Atrium Bayan Lepas 2. As the property was only acquired in November 2019, they are not part of 9M19 financials.
Going forward, we would expect the performance to further improved from the newly completed acquisition from Lumileds.
5) Increased in 9M20 Distribution per unit compared to the preceding 9 months in FY19
In terms of distribution per unit, Atrium REIT has declared a total of 6 cents in 9M20. This is an increased as compared to 4.4 cents in 9M19. The main factor for the increase is from the full-year income of Atrium Bayan Lepas 2 kicking in.
Summary
Atrium REIT has been performing well in the last 9 months in 2020. This is despite the COVID-19 uncertainty. Throughout the year, there have been a number of leases which are due for expiry which is of concern but all these leases have been renewed. As a result, Atrium REIT maintains its overall 100% occupancy rate as at 30 September 2020.
Its financial performance is also commendable. Both its net rental income and distribution per unit has increased compared to preceding 9M. An aspect which is worth pointing out is the REIT manager proactiveness in growing the REIT. Just by looking at its historical and upcoming acquisition, it is evident that this is the core reason why Atrium REIT remain resilience in this environment.
With a net asset value per unit of MYR 1.27 and the current trading price of MYR1.15, this would give investors a PB of 0.9. On the assumption that the final distribution in Q420 is at 2 cents (assume the same as the previous 3 quarters), this would give investors a full-year estimate DPU of 8 cents or 6.9% based on current trading price.
What are your thoughts on Atrium REIT 3Q20 results? If you are just getting started, feel free to read more of our REIT Guide and REIT Analysis. You can also read more about what REITs are if you are new to REITs.
