AREIT – CIMB

Reliable performer

• In line. A-REIT’s 1Q09 results were in line with consensus and our expectations. DPU grew 15.5% yoy to 3.89cts, forming 25% of our forecast of 15.4cts for FY09. Earnings in the quarter were powered by full contributions from Goldin Logistics Hub, HansaPoint@ CBP, SenKee Logistics Hub Phase 2, Acer Building, Sim Siang Choon Building, Science Hub & Rutherford, CGGVeritas Hub, and supported by the newly completed acquisitions of 8 Loyang Way 1 and 31 International Business Park. Revenue increased 19.6% yoy to S$92.5m.

• Strong organic growth. A-REIT’s portfolio in the quarter benefited from strong rental and occupancy growth. Renewal rates for its Business and Science Park segment and Hi-Tech segment grew 63.9% and 44.4% yoy respectively, while portfolio occupancy increased by 1.4% pts yoy to 98.6%.

• High pre-commitments for development projects. Pre-commitments for three development projects that would be completed between 2009 and 2012 were also high, at 80% for Changi LogisPark (North), 86.5% for Pioneer Hub, and 100% for Plaza 8 (Changi Business Park) Phase 1 and 75% for Phase 2.

• Maintain Outperform, albeit with lower target price of S$2.60 (from S$3.10). Our DDM-derived target price has been lowered to S$2.60 on the back of a higher discount rate of 9.6% (up from 6.7%), as we align our cost-of-equity assumptions with our house rates. Other estimates are unchanged as we remain positive on AREIT’s income stability from long leases (weighted average lease to expiry of 5.5 years), strong rental reversions for its Business and Science Park and Hi-Tech segments, built-in rental growth for its leaseback arrangements as well as upcoming contributions from A-REIT’s built-to-suit developments. Maintain Outperform.