- 1QFY3/15 results in line with market expectations.
- Development and asset enhancement works worth SGD153.9m due for completion by end-2015 to buffer downside risks.
- Preferred for its well-diversified revenue; reiterate BUY with an unchanged DDM-derived TP.
AREIT’s 1QFY3/15 revenue grew 8.1% YoY to SGD163.2m, bolstered by acquisitions, positive rental reversions and income support for A-REIT City @Jinqiao. DPU rose 2.5% YoY to 3.64 SGD cts. An 11.8% positive rental reversion was achieved for leases renewed in 1QFY3/15. Management expects mid- to high single-digit overall positive reversions for FY3/15E. Portfolio occupancy stayed high at 88.1% and 15.4% of its property income is due for renewal this year. AREIT’s financing cost remained flat QoQ at 2.70% with an average term of debt of 3.7 years (4QFY3/14: 3.3 years). Based ondisclosed interest rate sensitivity analysis, DPU would decline by ~1%, or 0.15 SGD cts, for every 50bps increase in interest rates.
Well-diversified revenue
The AEI at 5 Toh Guan Road East was completed last quarter. The building is now 96% occupied. AREIT has also embarked on two new AEIs at a capex of SGD25.6m at The Gemini-Aries and the Science Hub. AREIT still has SGD153.9m worth of development and asset enhancement works, which are scheduled for completion in 2H14-4Q15. This should buffer downside risks in the event that property prices correct.
With a tenant base of around 1,330 in a portfolio of 105 properties, with no single asset accounting for more than 4.4% of monthly gross revenue, AREIT is well diversified in terms of rental income.
Reiterate BUY with an unchanged DDM-derived TP of SGD2.6
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