A-REIT – DBSV

Strength in diversity

At a Glance

• DPU of 3.37 Scts in line with expectations and a good start for the year

• Portfolio occupancy remains stable at 95.1%

• BUY, TP S$2.11 offers a total return of 12%, backed by resilient yields of 6.9-7.2%.

Comment on Results

Resilient set of 1Q11 results. 1Q11 DPU of 3.37 Scts was in line with our expectations. Gross revenues and net property income improved to S$113.6m (+11% y-o-y) and S$87.3m (+8% y-o-y) respectively, mainly due to contributions from recently completed acquisitions & development projects. Distributable income came in at S$65.3m (7% y-o-y) but retained S$2.2m pending tax clearance from the authorities; DPU was 7% lower yoy due to a large unit base (but would be +3% yoy on a proforma basis). The trust is committed to pay 100% of its earnings for FY11.

Portfolio occupancy remained at 95.1%, positive rental reversions to continue in coming quarters. Average occupancy levels at its multi-tenanted buildings (“MTB”), which make up an estimated 56% of income, remain stable at 91.5% but is expected to improve in the coming quarters as the manager is in talks with prospective tenants to take up the vacant spaces. Rental income will improve with continued positive rental reversions as average asking rents remain above expiring rents.

Recommendation

BUY, TP S$2.11 offers total return of 12%. We continue to like A-reit for its diversified exposure and stable yields of c6.9-7.2%, which are attractive. Further re-rating catalysts in our view, would stem from the manager announcing further acquisitions/development projects opportunities which they are currently considering.