AREIT – ML

FY08 results inline

FY08 results inline
A-REIT reported FY08 results with distribution of 14.1cps, up 10.8% vs FY07 and inline with ML estimate of 14.0cps. Distribution growth was attributable to a 16% increase in net property income of which 10% was driven by income contribution from new acquisitions and 6% was driven by organic growth.

Business Parks and Hi-Tech key growth sectors
The spillover effect from tightness in CBD office continues to benefit A-REIT via portfolio exposure to business and science parks. Renewal rates for business parks improved 46% while Hi-Tech renewals were up 40% vs 2007. Portfolio wide occupancy was slightly down vs 3Q however remains high at 98.4%.

Development exposure reaching cap, Gearing 38%
A-REITs has committed developments to the value of S$309mn which equates to 8% of the regulated 10% development cap. In our opinion this limits A-REITs ability to participate in additional near term developments. Current gearing is at 38%. This is below stated target gearing of 45% but close to historical highs.

Maintain Sell
We maintain our Sell on A-REIT and fair value estimate of S$2.09. While operationally the business is sound we believe better relative value can be found in industrial S-REIT peers. To play the Ascendas group strengths we suggest switching into a-iTrust, while to stay exposed to the Singapore industrial market we suggest switching into Cambridge Industrial.