AREIT – DBS

Turning to development projects?

Comment on Results

• Gross revenue and net income available for distribution grew 15% yo-y to S$80.2m and $46.5m respectively, due to additional rental income from completed acquisitions. DPU increased 11% to 3.51 cents.

• As at 30 Sep 07, A-REIT has an aggregate leverage of 38.4%, with an average 91% of interest exposure fixed at a weighted average cost of 3.43% for a term of 4.2 years.

• A-REIT announced that it has committed to develop projects (i.e. Plot 8 Changi Business Park and an industrial facility at Pioneer Walk) at a total cost of S$277m.

Recommendation

• As the environment for third-party acquisitions gets increasingly more difficult in Singapore, we are positive on the move by A-REIT to undertake more development projects, which provide better yields.

• We have reduced our DPU forecast for FY08 and FY09 by 4% and 6% respectively, given that A-REIT has not made any announcements on income-yielding acquisitions in 1HFY08. As we have already assumed an acquisition pipeline of S$400m pa till 2010 in our valuation, the net impact of the inclusion of the development projects (phased over FY09 to FY11) and lower DPU is a slight increase of target price to S$3.18 (based on DCF valuation).