AREIT – UOBKH

4QFY08: Benefitting From Spillover Demand From CBD

A-REIT reported gross revenue of S$84.4m in 4QFY08, an increase of 13.9% yoy. Overall occupancy reached 98.4% as at Mar 08, compared with 96.6% last year. AREIT announced a DPU of 3.69 cents for 4QFY08, an increase of 11.8% yoy. This represents an annualised yield of 5.7% and will be paid on 30 May 08.

Positive rental reversion for Science & Business Park and Hi-Tech Industrial. A-REIT benefits from the shortage of office space within the Central Business District (CBD). This has forced many companies to relocate non-client-facing backroom and data centre operations to suburban locations such as Alexandra Technopark and Changi Business Park (CBP). There is also positive impact from an inflow of multinational companies expanding in Singapore. A-REIT signed renewed and new leases for a total net lettable area (NLA) of 784,925sf during the quarter, representing 9.7% of NLA for multi-tenanted buildings. Renewal rates for Science & Business Park and Hi- Tech Industrial were S$3.76 and S$3.10psf pm, 68.8% and 49.8% higher on a yoy basis.

A well-diversified portfolio. A-REIT had a portfolio of 84 properties and total assets of S$4.2b as at Mar 08. The weighted average lease to expiry is 5.9 years. A-REIT has a quality and well-diversified tenant base of over 790 international and local companies. The top 10 tenants account for 27.9% of portfolio income. The largest tenant, Singapore Telecommunications, accounts for only 6.5% of portfolio income. A-REIT’s weighted average funding cost is 3.1% due to its corporate rating of A3 and consistent track record. It will be concluding a three-year S$200m transferable loan facility, after which the earliest date for refinancing is Aug 09.

Maintain BUY. A-REIT provides FY08 distribution yield of 5.81%, a healthy spread of 3.46% over 10-year Singapore government bond yield at 2.35%. Our target price is S$3.00 based on the two-stage dividend discount model.