AREIT – DBS

Riding on industrial growth


1QFY08 results. Gross revenue and net income available for distribution grew 14% and 13% y-o-y to S$77.3m and S$44.7m respectively. This improvement was mainly due to additional rental income from completed acquisitions. Distribution per unit grew 9% y-o-y to 3.37 cents.

Continued growth in industrial rent. According to CBRE, the average rent for all industrial space increased in the second quarter of 2007. Hi-Tech industrial properties led the growth, recognising an increase of 11.9% q-o-q. With rising office rents and supply of office space remaining tight, the demand for high-end quality business space is expected to be strong. Therefore, we remain optimistic on the outlook for High-Tech industrial space and Business and Science Parks, of which A-REIT has a total exposure of 45% (by portfolio value).

JTC’s plan revealed. JTC announced its plan to divest property worth between S$1.4bn and S$1.6bn. At least half of the industrial assets would be placed in a trust (expected to be set up in 2Q2008) that will be listed on the SGX. However, we note that the potential acquisition pipeline coming from its sponsor, Ascendas Land (Singapore) Pte Ltd (Ascendas), is still strong.

Maintain Buy with raised target price of S$3.16. Moving forward, in view of higher rental reversions, we have increased our DPU forecasts. DPU forecast for FY08 and FY09 increased by 4% and 9% respectively. Hence, this has raised our target price to S$3.16 based on DCF valuation, which incorporates an acquisition pipeline of S$400m p.a. till 2010. With a total return, including yield, of 11%, we are maintaining
our Buy recommendation.