A-REIT – DBSV

Firm occupancy levels

• Steady DPU of 3.29 Scts on the back of sustained high occupancy levels of 95.6%.

• New BTS project announced to underpin longer term earnings growth.

• Maintain HOLD, TP S$2.19 offers total return of 6%

3Q11 DPU of 3.29 Scts in line with estimates. Higher topline and net property income of S$ 109.9m (+3.7% yoy) and S$83.0m (+2.0% yoy) respectively were largely from rental income of new properties since Dec 2009, while rental rates remain firm. NPI margins remained stable at c75%. Operationally, average occupancy levels inched up qoq to 95.6% (vs 95.3% in 2Q11) as the manager continues to see expansionary demand on the ground.

Spending S$35.9m on new build-to-suit (“BTS”) project. AREIT continues to display solid execution in its BTS projects with Phase 2 plot 8 Changi Business Park completed on schedule (100% commitment from Citibank) and also reported a revaluation gain of 123%. Next on the plate is the construction of a BTS logistic facility for a multi-national company end-user, which A-REIT secured a 10-year long lease upon completion, thus further improving the REIT’s long term earnings stability and visibility. We are not adjusting our estimates as we have previously assumed S$150m acquisitions /BTS projects in our numbers.

Strong balance sheet – Debt headroom of up to S$931m at 45% leverage level. Currently geared at 34.7%, A-REIT is empowered with S$931m headroom (till 45% gearing level) for further investment opportunities, which the manager remains on the lookout.

HOLD, TP S$2.19 maintained. A-REIT currently trades at 1.4x P/BV and offers FY11-12F yield of 6.2%-6.4%, which is a fair 340-360 bps above the 10-year bond yield and in line with its historical mean trading levels. Our HOLD call is maintained given limited price upside to our target objective.