AREIT – DBS

A-REIT acquires Creative building for S$247m (TP S$2.86)

Story: A-REIT announced yesterday that it has entered into a put-call arrangement with Creative Technologies Ltd to purchase their asset at 31 International Business Park for a total consideration of S$246.8m. Based on this acquisition price, the asset is purchased at a 6.24% NPI yield and with the tenant, Creative Technologies Centre Pte Ltd, paying a cash security deposit of S$72.2m ( equivalent to 5 years rental). The tenant will lease back the property for 5
years with an option to renew for a further 3+2 years.

Point: The reit has started their new financial year with a bang with this new capture worth S$246m and is in line with our expectations of S$400m worth of acquisitions this year. This latest acquisition will add a further 50.3 sqm of NLA to their portfolio, expanding it 3% to 1.73m sqm valued at c. S$4.3bn. Post purchase, A-REIT’s exposure to Business & Science park assets will increase to 31% from 25% of total portfolio previously.

The purchase is expected to be funded fully by debt/and or with part equity. However, we have assumed that management will draw down its debt facilities for this purchase. This will increase its gearing from 38.2% to 42% , which is still within its comfortable 40-45% LT gearing level.

In addition, development projects currently in the works ( worth c. S$ 179m ) will also be progressively added to the portfolio over the coming financial year which will further grow DPU moving forward.

Earnings surprise for A-REIT will derive from further 3rd party acquisitions and/or asset injections by their sponsor that are currently not factored in our estimates (above our S$400m p.a estimates)

Relevance: Maintain BUY on A-REIT , TP unchanged at S$2.86. We continue to like A-REIT as one of Singapore’s largest industrial property landlord. At current trading price of S$2.50, the reit is currently trading at FY09 and FY10 yield of 6.2% and 6.4% respectively.