AREIT – DBS

A-List player

Story: Ascendas recorded a strong end to FY07/08 with a 10.8% growth in DPU to 14.13cts in line with expectations. NPI grew 15.8% y-o-y to S$243m, on top of a 13.9% growth in gross revenues to S$322m. Main contributors for the strong operational performance were I) an increased portfolio occupancy (98.4% compared to 96.4% yoy), ii) organic growth from positive lease rental reversions of 274,061 sqm of its NLA during the year and iii) partial contributions from its seven new acquisitions and its development project, HansaPoint@CBP and from its asset enhancement initiatives. As at 31st Mar 07, its NAV per share was S$1.84, up from $1.49 a year ago..

Point: The strong result reaffirms A-REIT manager’s ability to deliver value through acquisitions and its prudent capital management which resulted in a flexible 38.2% gearing ratio, allowing a debt headroom of c.S$880m before it reaches the 60% regulatory limit. We believe that A-REIT will utilise debt to fund its short-term investment activities. While maintaining our acquisition assumptions of S$400m p.a till FY11, we have slightly revised our funding assumptions to be fully funded by debt in FY09 and thus maintaining a LT gearing ratio of 45%. As a result, we estimate A-REIT to deliver a higher FY09 and FY10 DPU of 15.6cts and 15.9cts respectively.

Relevance: We remain confident of A-REIT’s ability to drive DPU growth moving forward from a i) development pipeline worth c.S$300m, ii) sourcing for 3rd party properties, iii) active asset management in optimising property yields and at the same time, keeping its interest cost and repayment at a manageable level. A-REIT is currently trading at a FY09 and FY10 yield of 6.6% and 6.8% respectively . Maintain BUY with a revised TP of S$2.86 based on DCF.