AREIT – CIMB

Sailing the storm

• Maintain Outperform. We expect A-REIT’s income streams to come from its current development projects as well as built-in rental increases on its long leases. Additionally, management had been able to secure refinancing for S$500m of debt on a long-term basis almost one year before debt maturity on attractive rates and without the need to pledge assets or rental streams. This speaks volumes about the strength of its banking relationships. Reducing secured borrowings will afford AREIT more financial flexibility going forward.

• Resilient demand and diversified tenant risk. We expect new demand for industrial space to soften in tandem with an expected economic downturn. Nonetheless, existing demand is expected to stay resilient, with a lagged effect of about 18 months between a business slowdown and actual cutbacks in space. AREIT also has minimal tenant concentration risk with a tenant base of 860 as compared with MLT (224) and CIT (43).

• Unchanged DDM target price of S$2.17 (discount rate 8.7%). We continue to like A-REIT for its relatively resilient income streams anchored by long lease tenures, and leadership (through parent Ascendas) of the built-to-suit market. A-REIT remains the best proxy for business and science park space, the highest-quality segment of industrial space in Singapore. Maintain Outperform.