A-REIT – CIMB

Building for the long-term

4QFY3/13 was another positive quarter as AREIT executed its growth strategy well, aided by a portfolio of quality assets and past investments. With steady DPU growth and a defensive balance sheet, AREIT should benefit from the recent resurgence in demand for yields.

At 22% and 98% of our FY13 forecast, respectively, 4Q13 and FY13 DPU broadly met our and consensus forecasts, with the slight variance resulting from a performance fee. We nudge up our DPUs and DDM-based target price as we factor in the results and a lower discount rate of 6.4%. Maintain Outperform on the catalysts of accretive AEI and developments.

A steady quarter

AREIT put up a steady performance in 4QFY13. FY13 DPU was up 1.3% yoy and would have risen 3.6% if not for a one-off performance fee. Yoy growth came from an 11% rise in NPI as higher property taxes and other property expenses eroded part of a 14% revenue increase. The portfolio remained healthy with weighted average reversions of 14.5% in 4Q, just shy of 3Q’s 18.5% as portfolio occupancy remained a fairly healthy 94.0% despite increased conversion of single-tenanted buildings to multi-tenanted ones. Current market rents remain 9-35% higher than passing rents due for renewal in FY13/14, which coupled with AEIs to upgrade older assets, should position AREIT well for rental reversions.

Disciplined on acquisitions

Management continues to eye only quality assets for acquisition. Given elevated asset values, it believes that its competitive advantage lies in developments, aided by its fairly light balance sheet (30% asset leverage after committed investments). AREIT is also warming up to overseas acquisitions in Iskandar and China, with increased inclination towards developments to ensure asset quality. It announced a new BTS development of DBS Asia Hub Phase 2 in 4Q and continues to make leasing headway on past investments.

Maintain Outperform

With a quality asset portfolio, in-built growth as past investments come onstream and defensive capital management, AREIT should benefit from the recent hunt for yield.