AREIT – DBS

Singtel Booster

• BTS facility for Singtel at total cost of cS$176m
• Guaranteed income for 20 years + option for a further 10 years
• Estimated DPU accretion at 1-2% from FY11 onwards
• Upgrade to BUY, TP S$1.60 based on DCF

Build-to-suit (BTS) facility for Singtel. Ascendas REIT announced that they have secured an S&P with Singtel to develop a BTS facility at Paya Labar Road, next to Singtel’s Kim Chuan Telecommunication complex (owned by A-reit). Total cost is estimated at S$176m (c.S$100m for construction + cS$76m for equipment) and will be fully funded by debt. This project is estimated to TOP in 1Q 2010.

Secured for 20 years + option for another 10 years. Upon completion, Singtel will lease the property for an initial 20 years with annual escalation and have an option to extend it for a further 10 year period. This ensures income stability and visibility for the reit before embarking on construction. Impact on DPU from this proposed development is projected to be -0.06 Scts in FY10F and +0.13 to 0.26 Scts in FY11-12F.

Financial metrics unlikely to be stretched. Financial metrics likely to remain relatively strong with gearing within 40% level, assuming no further asset write-downs. Interest cover remains relatively healthy at c4.0x.

Upgrade to BUY, TP S$1.60. We like A-reit for its cautious approach towards growing its portfolio and earnings during tough operating conditions. Upgrade to BUY, TP S$1.60 based on DCF. Current price offers 17% upside to our TP and offers a FY10-11F prospective yield of 9%.