a-iTrust – DBSV

Hit by stronger S$ exchange

• Stable 2H10 outlook

• Development projects on track; pre-leasing activities slightly behind schedule in our view

• Downgrade to HOLD given limited upside to S$1.08 TP

2Q11 DPU of 1.70 Scts in line. Topline and net property income (“NPI”) were in line with expectations at S$29.6m (-3% yoy, -4% qoq) and S$18.2m (-5%yoy,-4% qoq) respectively; the declines due to a stronger S$:Rp exchange rate. As such, distributable income came in 8% lower at S$13.2m, translating to a DPU of 1.70Scts.

2H10 outlook is stable. Earnings in Rp remained stable with rental revenues inching upwards but offset by lower maintenance and operations income. A further 19% of its space is to be renewed in 2HFY11. While its operations in Bangalore and Hyderabad are expected to continue to see positive reversions, they are expecting to see moderate pressure in Chennai (ITPC) given the large competing supply situation there. As such, we moderate our rental growth assumptions from +2% to flat in 2H10, resulting in a slight reduction in our forward estimates.

1.7m sqft of development projects on track, pre-leasing activities slight behind schedule, in our view. 2 out of 3 buildings (Zenith in ITPC & Park Square Retail Mall in ITPB, +1.19m sq ft) will be completing soon. Pre-commitments are at 20% and 47% respectively, slightly slow for Zenith in our view. Negotiations are on-going and we remain confident that a-itrust will be able to fill the remaining space in the coming quarters. However, the slower than expected take-up will mean that earnings growth from these completions will likely be felt only from 2H FY12.

Downgrade to HOLD, TP S$1.08. While we like a-itrust as a premier space provider in India, we see limited upside to our price objective from current levels. As such, we downgrade to HOLD. Aitrust offers FY11-12F yields of c 6.7-7.7%.

Upside surprise. Upside surprise will hinge on acquisitions that the trust could undertake given its low gearing of 22%, which is not factored in our estimates.