AREIT – DBS

Confidence boosting 1Q09 results

Story: Ascendas REIT (AREIT) begins the new financial year on a good note. Gross revenues and NPI grew 19.6% and 20.1% yoy to S$92.5m and 69.7m respectively and are within 25% of our full year forecasts. Distribution income also increased 16% to $51.7m, translating to a DPU of 3.89cts. A-REIT’s portfolio also enjoyed high portfolio occupancy of 98.6%.

Point: The strong performance was largely attributed to contributions from an enlarged asset base following completion of several properties in the last quarter. In the current quarter, AREIT added 2 more properties to its portfolio, bringing it to 86 properties worth c.$4.5bn. In the near term, we expect growth from i) contributions from the recent purchase of Creative Building and 8 Loyang Way in coming quarters, and ii) positive rental reversions from 7.1% of its NPI. In the medium term, its development projects worth S$326m currently WIP will provide support for NPI growth, not forgetting potential 3rd party asset acquisition opportunities. In this aspect, we have assumed S$400m worth of asset acquisitions in FY09- FY11, funded by a combination of debt and equity in the later 2 years, leading to a LT gearing ratio of 44%.

Relevance: Maintain BUY with TP S$2.48. We have adjusted our DCF valuation downwards to take into account a higher risk free rate of 3.9 and a lower terminal growth rate of 0.5%. AREIT is currently trading at 1.2x P/NAV and offers investors a stable FY09 and FY10 DPU yield of 7.4% and 7.6% respectively.