3Q-9M FY3/13 results inline. 9MFY3/13 revenue at SGD430.5m, was 75% of ours and 78% of consensus estimate. 3QFY3/13 revenue at SGD145.2m, was 25% of ours and 26% of consensus estimate. 9MFY3/13 DPU at 10.68 SG-cts (+6.2% YoY) was 75% of ours and 76% of consensus estimates. 3QFY3/13 DPU at 3.62 SG-cts (+2.5% QoQ, +4.0% YoY) was 25% of ours and 26% of consensus estimates. Aggregate leverage inched up to 32.8% from 32.5% last quarter, following funding of committed investments. All-in-financing costs for 3QFY3/13 averaged 3.19% (2Q: 3.15%) with an average term of debt of 3.9 years (2Q: 4.2 years).

Stable portfolio continues to deliver. Occupancy rate (same-store basis) for the portfolio and multi-tenanted buildings (MTB) remains flat QoQ at to 96.6% and 93.4% respectively. 3QFY3/13 weighted average lease to expiry was 3.8 years, with only 2.1% of income due for renewal for the remaining FY3/13. Positive rental reversion on renewal range between 5.5%-25.3% throughout all segments of the portfolio boosting QoQ NPI margin (from 71.8% to 72.1%) and yields (from 6.6% to 6.7%). YTD rental reversion of 13.9% was achieved for the portfolio.

Business Park exposure not fatal. AREIT’s business/science park portfolio constitutes 38% of our FY3/14 GAV and gross revenue. We are heartened that A-REIT has secured commitment for about 31% of the lettable space (complete in 3Q12, 223k sqft) at Nexus@one-north last quarter, despite the onslaught of ~7m sqft of new known supply in 2012-2015. We noted that the majority of this supply (~81%) is in the central region (One North and Mapletree Business City), where AREIT has ten out of 23 existing properties. According to our estimates, the central region assets comprises ~40% of AREIT’s business park revenue and NLA. Predominantly, AREITs business park portfolio (~60%) is still concentrated in the east and west region, namely the International Business Park (IBP) and Changi Business Park (CBP). At 94% occupancy for business park with mostly MNC tenants, we think AREIT stands in good stead to weather the impending supply.

New Asset Enhancement Initiative. AREIT has also initiated enhancement work at 31 International Business Park, at a cost of SGD13.2m, to take advantage of prospective future demand in the area. The AEI will complete by 3Q13. We raise our FY3/13-3/15 DPU by 0-0.34% in view of the enhancement. We continue to like A-REIT for its stable DPU yield, healthy lease expiry (<25% of income expiring per annum) and debt maturity profile. Reiterate BUY with an unchanged DDM-derived TP of SGD2.60.

Source: Maybank Kim Eng Research - 16 Jan 2013