A-REIT – DBSV

First deal in China

• Sealed S&P contract of a business space property for RMB587.9m

• Earnings impact is small, but acquisition is a test of its execution ability in China

• HOLD Call, TP S$2.19 maintained.

Acquiring a business space property under construction The 79,880 sqm GFA business space property is well located in Jinqiao Export and Processing Zone (“JEPZ”), a well established and connected development zone in Pudong New District, Shanghai. The purchase will cost RMB 587.9m (S$117.6m) and complete towards end 2012 upon TOP of the property.

No pre-commitments yet. It seems to us that A-REIT has taken a leap of faith in acquiring the development project without any pre-commitments to-date. This, in our view, deviates from management’s more conservative approach towards acquisitions where the property usually comes fully/partially leased. Nevertheless, we believe this will provide A-REIT with the opportunity to showcase its execution ability, while there is ample time of 2-years to fill the space – concerted marketing efforts through its existing tenant network and leveraging on its parent, Ascendas Group’s established presence in China. In addition, the vendor has undertaken to guarantee RMB67m rental, (or a gross rental yield of 11%), hence mitigating leasing risk for A-REIT.

Assuming that (i) A-REIT is able to fill up the space upon completion by end 2012, (ii) at an average rental rate of RMB 2.30/day or a topline of RMB 67m, and (iii) funded with a 60-40% equity/debt ratio, DPU impact is estimated to <1%.

Maintain HOLD, TP S$2.19. While we like A-REIT for its diversified portfolio and management’s track record of delivering earnings growth for unitholders, current upside to our TP is limited. As such, we maintain our HOLD rating and DCF-derived TP of S$2.19. A-REIT currently offers a yield of 6.4-6.9%