3QFY3/14 results in line with market expectations.

AREIT still has SGD93.6m worth of development and asset enhancement works, which are scheduled for completion in 1Q14-2Q15, serving as buffers for downside risk.

Capital value still at risk. We see AREIT’s success closely intertwined with Singapore’s economic restructuring efforts. We reiterate HOLD with unchanged TP of SGD2.30.

Results in line with expectations

AREIT’s 9M revenue grew 6% YoY to SGD154m, constituting 76% of our and 74% of consensus estimates. The rise was attributable to rental income earned from The Galen, which was acquired at the end of FY3/13, rental income from Nexus@one-north, A-REIT City@Jinqiao and finance lease interest income received from a tenant. 9M DPU stayed flattish at 10.69 cents, forming 73% of our and 75% of market forecasts. AREIT achieved positive rental reversion in 3QFY3/14, averaging 9.7% across all segments of the portfolio. AREIT also announced a SGD11.1m asset enhancement work, The Alpha, with expected completion by Mar 2014.

Remain negative on industrial REITs

We see industrial REITs facing major downside risks from the impending hike in interest rates and possible recalibration of over-inflated property prices – both of which can drag NAV down. Other challenges include a fragile global macroeconomic outlook and ample supply in the pipeline. Iskandar Malaysia will also pose competition in the medium term, especially for lower value-added industrial activities within Singapore. We maintain HOLD with an unchanged DDM-derived target price of SGD2.30.

Source: Maybank Kim Eng Research - 20 Jan 2014