MIT – CIMB

On track

A dip in Business Park reversionary rents marred an otherwise stellar quarter after itsAugust acquisitions and equity fund-raising. We anticipate continued strength in the other segments which shouldoffsetthe stress in Business Parksgoing forward.

3Q/9M12 DPU meets consensus and our expectations, at 27%/ 78% of our estimates. We keep our estimates and DDM-based target price (disc rate: 8.6%). Maintain Outperform.

Biz Park reversions fell

3Q DPU shrank 9.2% yoy due to new units issued in Aug 11. Qoq growth was a positive 5.4%, led by improved portfolio occupancy (95.1%; +0.6% pt) and positive rental reversions for Flatted Factories (+26.8%), Stack-Up/Ramp-Up Buildings (27.5%) and Warehouses (31.5%) over the last renewal period, typically three years ago. In contrast, reversions in Business Parks fell 9.6%. New leases contracted here averaged S$3.92, 5.1% below renewal rates, hinting at more weakness to come.

Lengthening WALE

As at Dec 11, only 3.2% of its portfolio (by gross revenue) remained due for the rest of FY12. In future renewals, management intends to encourage tenants to take up longer leases of more than three years, to lengthen its portfolio weighted average lease to expiry (WALE) of 2.4 years (vs. REIT peers’ five years or so).

Two AEI projects to take off

Management announced AEI plans for Toa Payoh North Cluster 1 and Woodlands Central Cluster. While costs have not been finalised, capex should be S$30m-40m for each at a yield-on-cost of 9%. When completed, an additional 200,000sf (1% of portfolio GFA) will be created. Completion is anticipated by 2H12 with no major disruptions to revenue contributions. The AEI was catalysed by the expansion plans of existing tenants.