a-iTrust – DBSV

Development projects complete

• Stable 3Q11 results

• Completion of Zenith and Park Square mall to underpin earnings growth

• Upgrade to BUY with S$1.08 TP based on DDM, offering total return of 20%

DPU of 1.72 Scts in line. Gross revenues held steady at S$29.9m, dampened slightly by a stronger S$/INR rate (underlying performance in INR was up 4% yoy). Net property income declined by 12% yoy due to higher utilities expenses resulting from an increase in electricity tariffs at ITPB. The manager expects to be able to pass on the increase to tenants in subsequent quarters, which should lead to operating margins returning to normalised levels. Portfolio occupancy remained high at 98%, even in the face of rising supply, highlighting a-itrust’s superior standing among tenants. Distributable income declined by a lower 7% to S$13.2m, largely due to savings from lower interest payments due to lower rates.

Completion of Zenith (located in ITPC) and Park Square Retail Mall (ITPB) to underpin future earnings growth. Both assets increased a-itrust’s SBA (“Super built-up area) by 1.1 m sqft or 25% to 5.9m sqft. Pre-commitments for Zenith and Park Square Retail Mall are progressing well at 28% and 49% respectively. Tenants should be undergoing fit-outs over the next couple of months and occupancy should ramp up in the coming quarters. We expect contribution from these 2 assets to start from FY12. In addition, its 3rd development asset – Voyager (located in ITPB, currently 29% pre-leased) – should be completed by mid 2011 (or 1Q12) and is expected to contribute positively to earnings.

Upgrade to BUY, S$1.08 TP offers 20% total return. Stock has declined 8% since our downgrade and is worth a re-look at current levels. a-itrust offers attractive forward yields of 8.3-9.0%, which are 230-300 bps above the Sreit sector average. Gearing of 12% as of 3Q11 also implies ample headroom for opportunistic acquisitions, which are currently not factored in our forecasts.