AREIT – CIMB
Record occupancy lifts DPU
• 3Q08 results exceed expectations. Gross revenue rose 12.8% yoy to S$80.2m in 3Q08 while distributable profit grew 15.1% yoy to S$47.2m. 3Q08 DPU of 3.56 cts represents 26% of our full-year forecast and consensus and fulfils 76% of our FY08 DPU forecast. This could be attributed to higher occupancy levels in its multitenanted buildings (97% vs. 96.2% in 2Q08). A-Reit’s portfolio occupancy reached a record high of 98.7%, up from 96.1% a year ago. Renewal rates for the Business Park and Hi-Tech segments also grew by double digits (+46.1% and +71.5% over previous transacted rates respectively).
• Upcoming acquisitions. A-Reit announced MOUs amounting to S$201m for the acquisition of income-producing properties. In addition, it has completed the acquisition of Goldin Building at Pioneer Walk for S$22.5m. To date, A-Reit has invested S$299m in new acquisitions and S$338m in development projects, which would be completed over 2009-10. We believe it is on track to achieve its target asset size of S$5bn by end-2010.
• HansaPoint @ CBP fully pre-committed. Scheduled for completion in 1Q08, Hansa Point, a multi-tenanted business park building, is now 100% pre-committed with more than 50% of the pre-commitment coming from financial institutions as the office crunch persists.
• Large impending warehouse supply may dampen rents. According to URA statistics, some 6.7m sf of gross warehouse space is due for completion in 2008-09. We estimate this could translate to an average 2.7m sf of net warehouse space p.a., more than double the last five years’ average net new supply of 1.3m sf p.a. This is likely to have a negative impact on A-Reit’s income stream as the logistics segment is its income largest contributor.
• Downgrade to Neutral from Outperform; target price lowered to S$2.83 from S$2.89. In view of the impending warehouse oversupply, we have moderated our income estimates for the logistics segment. This lowers our FY09-10 DPU forecasts by 1.2-1.8%. Accordingly, our DDM-derived target price has been trimmed from S$2.89 to S$2.83 (cost of equity unchanged at 6.2%). Downgrade to Neutral as we believe that the stock will track the STI’s performance in the near term.