AREIT – UOBKH

1Q08: Good Start For The Financial Year

1Q08 NPI increase 15.8% yoy, DPU up 9.1% yoy. A-REIT’S net property income of S$58.0m and net profit S$42.7m reflects a 15.8% and 12.7% increase yoy respectively. The increase in rental income was a result of new leases and expansion by existing tenants which recorded a 57% yoy increase. DPU rose 9.1% from 3.09 Scts in 1Q07 to 3.37 Scts (6.79 Scts on an annualised basis). Overall occupancy was at 97.2% in 1Q08 compared to 96.1% 1Q07

Acquisitions continued to be focal point. Currently, A-REIT has a portfolio of 78 properties with a total book value of S$3.3b. In 1Q08, they acquired 1 Senoko Avenue. Currently, two development projects (HansaPoint @CBP and Zuellig Pharma) and two acquisitions of properties under construction (SENKEE Logistics Hub and Goldin) worth a total of S$148m are pending completion. Going forward, we believe acquisitions will continue to be the strategy for AREIT, although we note that the rate of acquisitions has slowed down in the last quarter.

Rental reversions and rising rental rates still key growth driver. A-REIT has successfully renewed or leased a total of 82,763 sqm of space in the last quarter. New demand for multi-tenanted buildings grew by 57% to 23,234 sqm compared to 14,754 sqm a year ago, out of which 21.5% and 19.3% were in the Business & Science Park Segment and the Hi-Tech segment respectively. We believe that A-REIT’s total 44.3% portfolio of high growth segments will continue to be a key beneficiary of the spillover from office demand for the next 2-3 years.

Re-iterate BUY, target price at S$3.13. We re-iterate BUY call on A-REIT with a target price of S$3.13, based on our DCF valuation which assumes a WACC of 5.62% derived from a market risk premium of 6.5% and beta of 0.75, and terminal growth rate of 1.5%. We also factored in acquisitions of S$400m-700m p.a. over the next few years.