a-iTrust – DBS

Reasons to stay invested

• Consistently strong performance
• Earnings spike to come in FY11 post completion of 2 of its new buildings
• Buy for growing yields, TP S$1.17

Stable operations. Gross revenues came in line with expectations at S$29.9m (+4% yoy, -2% yoy), contributed by higher rents, increase in energy billings from ITPB power plant, higher maintenance fees at ITPC and new contributions from a new multi-level car park in ITPB. Net property income (NPI) came in at S$19.3m (+13% yoy, +1% qoq), lifted by savings from successful cost management initiatives instituted in 2Q10. Distributable income came in at S$14.1m (-8% yoy, 0% qoq) translated to a DPU of 1.85 Scts.

Sustained occupancies, upside from development projects. Looking into FY11, a-itrust will be renewing c35% of its space, most of which are from the Vega and the Crest. Given that this is the first renewal cycle, we believe that tenants should remain at their existing locations. In addition, we look forward to a-itrust taking delivery of 2 out of 3 development projects in the later part of FY11, which will lead to positive earnings growth.

Adjusting INR assumptions. The strengthening of INR vs S$ exchange rates means that future hedges are likely to be in a-itrust favor. Therefore, we adjust our INR vs S$ estimates to INR 33.5 to S$1, in line with our DBS currency strategist’s outlook for INR in 2010 which is similar to the rate that the trust has hedged its next distribution payment.

BUY for growth, TP S$1.17. a-itrust’s DPU CAGR of 9% over FY11-12 remains a key attraction, prospective yield of 7.9-8.5%. Upside earnings surprise will hinge on potential acquisitions given a-itrust’s strong financial leverage position. Our target is adjusted to S$1.17 from higher earnings estimates and rolling forward our valuations.