New source of income for Atrium

By The Star

PETALING JAYA: Atrium REIT is expected to pocket net income of RM98,000 a year from its first industrial building, which translates into a net property yield of 7.7%, Aseambankers said in a report.

The proposed RM125mil acquisition of a building at Senai Industrial Park in Johor from Yong Jin Development Sdn Bhd was also expected to increase Atrium's dividend yield by 0.33%, it said yesterday.

Aseambankers said the building would boost Atrium's net lettable area (NLA) by 15.5% to 934,173 sq ft, bringing it closer to achieving its targeted one million sq ft in NLA by year-end.

The leasehold property, with NLA of 125,173 sq ft, is currently leased to Flextronics Technology (M) Sdn Bhd for RM1.2mil annually, or an annual gross yield of about 9.6%

Flextronics' five-year tenancy expires at end-2011 and it has the option to renew for a further five years.

Assuming the deal will be financed entirely by borrowings at an interest cost of 4.4%, analyst C. T. Ong forecasts Atrium's net profit for the financial year ending Dec 31, 2008 to rise by 4.1%.

He said the acquisition price was fair at RM100 per sq ft, noting that a similar acquisition by Axis REIT in Johor at RM109 per sq ft had an estimated net property yield above 8%.

Pending more guidance from Atrium's management, the research house is maintaining its forecasts and reiterated its “buy” call on the counter with a target price of RM1.28.