AREIT – DBS

Resilient even in turbulent times

Story: Ascendas REIT (AREIT) released 2Q08 results that were within expectations. Gross revenues and NPI grew 21% yoy to S$97.3m and 72.6m respectively. Main contributors were from (i) positive rental reversions from expiring leases and (ii) additional rental income from various 3rd party completed acquisitions and development projects; HansaPoint@CBP which received TOP in Jan’08. Distributable income also increased 16% to $53.3m, translating to a DPU of 4.01cts.

Point: Moving forward, we expect outlook to turn challenging on the back of potential slowdown in Singapore’s economy, leading to softening demand for industrial space. While we expect some moderation in rents and occupancy levels moving forward, AREIT should still be able to ride out these turbulent times given that (i) long lease expiry portfolio of 5.5 years, of which 49% are Sale-Lease Back Buildings that were mostly signed on as long term leases, and (ii) prudent capital management that should limit the impact of rising interest rates on DPU. As such, we are adjusting our rental & occupancy rates (-5 to 10%) and interest rates assumptions (+50bps). Imputing the above changes, our DPU forecast for FY09F-FY11F are to 15.6 Scts (0%), 15.0 Scts (-10.5%)and 15.1 Scts (new estimate) respectively.

Relevance: AREIT currently offers at an attractive DPU yield of c.10% over FY09 – FY11, backed by quality properties located in major industrial hubs in Singapore. Maintain BUY, TP$2.10 based on parity to our RNAV estimate.