AREIT – UOBKH

1QFY09: Steady double-digit growth

A-REIT reported gross revenue of S$92.5m in 1QFY09, an increase of 19.6% yoy. Overall occupancy reach 98.6% at Jun 08, compared to 97.2% last year. It achieved strong growth of 63.9% and 44.4% for renewal rates for Business & Science Park and Hi-Tech Industrial properties respectively against preceding contract rates. It acquired 8 Loyang Way 1 for S$25m and 31 International Business Park for S$246.8m during the quarter and currently has a portfolio of 86 properties valued at S$4.5b. A-REIT announced DPU of 3.89 cents for 1QFY09, an increase of 15.4% yoy. This represents annualised yield of 7.4%.

Developing build-to-suit offices at suburban locations. A-REIT utilise development projects to enhance return for unitholders. It is developing a partial build-to-suit distribution facility at Plot 7 & 8 Changi LogisPark with Zuellig Pharma as the anchor tenant. The project is expected to be completed in 2QFY09. A partial build-to-suit ramp up high specification industrial facility at Pioneer Walk is expected to be completed in 2/3Q FY09. The development is already 86.5% pre-committed and key tenants are Tyco and Ameriod. A-REIT is developing two build-to-suit facilities and a multi-tenanted block with combined floor space of 803,600sf at Plot 8 Changi Business Park. Phase 1 comprising two build-to-suit facilities is fully committed to Citigroup and is expected to be ready in 4QFY09.

Maintain BUY. A-REIT provides FY08 distribution yield of 7.7%, an attractive spread of 4.3% over 10-year Singapore government bond yield at 3.4%. Our target price is S$3.00 based on two-stage dividend discount model.