A-REIT – DBSV

Acquisitions to sustain earnings growth

• 4Q11 results in line with expectations

• Acquisitions to drive FY12-13F earnings growth of 11%

• HOLD call, DCF-based TP S$2.14 maintained

4Q11 results in line with expectations. 4Q11 distributable income of S$61.2m (DPU of 3.27Scts), +19.8% yoy, – 0.6%qoq was in line with our expectations. Topline of S$112.9m (+8.7% yoy, +2.6% qoq) was largely due to acquisitions completed in 1Q11 and the completion of its development project – 5 Changi Business Park Crescent which was 100% pre-committed to Citibank on a long term lease. This was aided by an uptick in average portfolio occupancy level to 96%, with 1pct sequential improvement in take-up of its multi-tenanted buildings to 92.1%. A-REIT continued to see positive rental reversions – 0.6% to 3.7% increase from 3Q11. NPI margins fell to 74.4% due to the expiry of proper tax rebates, an enlarged portfolio coupled with higher utility costs incurred in 4Q11.

Acquisitions driving FY12-13F earnings growth of 11% Earnings growth over the next 2 years will be driven by new acquisitions of S$376.1m (including committed investments development projects, asset enhancement plans). In addition A-REIT is pursuing some S$200m worth of opportunistic acquisitions in the coming months, which we have assumed in our numbers.

HOLD call on valuation grounds, DCF-based TP S$2.14 is maintained. While we like A-REIT for its defensive and well diversified portfolio and execution track record for its development projects, upside to our target price is limited from current level. Forward yields of 6.7-7.0% should limit downside to share price.