A-REIT – CIMB

Stable performance

Rental renewals in the quarter rose strongly relative to the last renewal period even though new take-up is slowing. We anticipate resilient yields helped by limited lease renewals in the coming year and boosted rents after asset enhancement.

3Q12/YTD DPU forms 25% and 74% of our full-year estimate. The results are slightly ahead of consensus. We raise our DPU and DDM-based TP (disc rate: 8.6%) to account for acquisitions announced in Dec 11. Maintain OUTPERFORM on portfolio resilience.

Renewal rates strong, though new take-up was slow

Rental renewals rose strongly (compared to the last renewal period, typically three years ago) by 5.7-28.4%, led by the logistics segment (which was 18% below market rents). However, new take-up slowed to 0.5-3.6% for the three sectors. Occupancy at multi-tenanted properties dipped to 92.4% from 93.0% in 2Q12 while portfolio occupancy moderated from 96.4% to 95.9%. This was attributed to the acquisition of Corporation Place, which had a low occupancy rate (79.6%) and the commencement of refurbishment work at 9 Changi South Street 3, which affected occupancy.

Asset enhancement

Phase 1 refurbishment of 10 Toh Guan Road has been completed. About 57% of the additional 87,000sf space created has been pre-committed, resulting in an estimated 12% ROI for Phase 1 investment. We estimate gross rents of S$4psf for this space. Separately, the manager is adding space to 9 Changi South Street 3.

Accounting for Dec acquisitions

We account for the acquisitions of Corporation Place and 3 Changi Business Park Vista totalling S$179m, assuming full contributions in FY13. We anticipate DPU accretion of 0.1ct (less than 1%) at 88% occupancy.