AREIT – DBS

Slowly and steadily

Comment on Results

A-REIT reported 15% higher net income available for distribution yoy at S$47.2, on the back of 13% increase in gross revenues to S$80.2m. This was mainly due to additional rental income from completed acquisitions and positive rental reversions from its high-tech industrials and business as well as science parks.

Average occupancy levels rose to 98.7% as at 31 Dec 07 compared to 96.1% a year ago.

Leverage at 38.6%. As at end Dec 07, AREIT had an aggregate gearing of 38.6%, which was 88% fixed at 3.39% and an average weighted term of 3.92 years. Interest cover ratio was 5.32x.

Recommendation

As at 31 Dec’07, A-REIT’s portfolio consisted of 79 properties with five additional investments worth S$277m and MOUs worth S$200m expected to be included into the portfolio in stages
over the next few years. In the near future, we await HansaPoint @ Changi Business and Plot 7 & 8 Changi LogisPark to be injected into the portfolio (Total value: S$61m).

Moving forward, we expect A-REIT to seek higher yielding development projects and purchase 3rd party acquisitions at the same time.

Maintain BUY at TP S$2.80 based on DCF valuation. We have reduced FY09 DPU contribution by 2% as we are now assuming S$200m worth of acquisitions in FY08 (previous : S$400m). YTD, acquisitions have hit S$98m and we expect part of the MOUs worth S$200m to materialise in FY08. In view of the additional investments secured and possible 3rd party acquisitions coming on stream, we maintain our forward acquisition assumptions of S$400m p.a.
till FY10.