A-REIT – Maybank Kim Eng

Steady as she goes

• FY3/14 results in line with market expectations.
  
• AREIT still has SGD135.3m worth of development and asset enhancement works due for completion in 2Q14-4Q15, which should help buffer downside risks.
  
• Reiterate HOLD with a DDM-derived TP of SGD2.31.
  

Results in line with expectations

AREIT’s FY3/14 revenue grew 6.6% YoY to SGD613.6m, bolstered by rental income from The Galen, which was acquired at end-FY3/13, Nexus@one-north and A-REIT City@Jinqiao. Full-year DPU rose 3.6% YoY to 14.24 cts. Although AREIT achieved 14.8% positive rental reversion for leases renewed in FY3/14, management expects the trend to moderate in FY3/15E, with demand slowing and new industrial space supply coming up. About 21.3% of its property income is due for renewal this year. The all-in-financing cost for 4QFY3/14 averaged 2.7% (4QFY3/13: 3.3%) with an average term of debt of 3.3 years. According to AREIT’s interest rate sensitivity analysis, its DPU would decline ~1%, or 0.16 cts, for every 50bps increase in interest rate.

Buffered downside

AREIT still has SGD135.3m worth of development and asset enhancement works, which are scheduled for completion in 2Q14-4Q15. We believe this would help buffer the downside risks should property prices be recalibrated due to the impending hike in interest rates. Management also announced redevelopment works for C&P Logistics Hub and Techlink/Techview, costing SGD61.9m. The works will complete by 4Q15, adding another 25.9k sq m to its GFA. We adjust our FY3/16E-17E DPU marginally to factor in the enhancement works. We forecast 3.9% DPU CAGR for FY3/14-17E. Maintain HOLD with a DDM-derived target price of SGD2.31 (previously SGD2.30).