AREIT – CIMB

Holding fort

• Two built-to-suit (BTS) projects completed and near 100% occupancy. Two of A-REIT’s BTS development projects have been completed and are nearly fully taken up. Indicative average gross rents suggest net yields of 9%, in line with our initial estimate.

• Changes in assumptions. As the global financial turmoil plays out, we expect slowing global and domestic economies to result in declining occupancy rates at AREIT’s multi-tenanted buildings. We have also cut our acquisition assumptions, and increase the cost of debt used in our model for FY10-11.

• Downgrading DPU forecasts; target price lowered to S$2.16 from S$2.60. Our FY09 DPU forecast remains unchanged while our FY10-11 forecasts have been lowered by 7-15%, reflecting our reduced earnings estimates. Following our adjustments, we have a new DDM-based target price of S$2.16 (discount 8.7%). This represents a total yield of 38.5% from a 9.2% forward yield and potential price upside of 29.3%. We remain convinced that with its spread-out debt maturity, optimal asset leverage, “A3“ credit rating, and strong sponsor in Ascendas, A-REIT will be able to access funds for refinancing. We continue to like its quality assets,
diversified tenant base and visible earnings. Maintain Outperform.