3QFY13  DPU  in line with  expectations. Ascendas REIT (AREIT) reported 3QFY13 DPU of 3.62S¢ (+4.0% YoY), equivalent to 26.2% of our FY13 DPU estimate. Revenue and net property  income  came  in  at  S$145.2m  and  S$104.7m  respectively.  The  rise  in  NPI  by 11.5%  YoY  was  mainly  due  to  additional  contribution  of  full  quarter  rental  income  from completed  development  projects  and  newly  acquired  properties  since  September  2011. Going  forward,  we  expect  AREIT  to  register  continual  growth  in  DPU, mainly  from  1) additional  contribution  from  the  new  properties  acquired;  2)  further  AEIs  on  its  existing properties  and  3)  positive  rental  reversion  contributed  by  low  rates  due  for  renewal  in  the coming  quarters.  Although  both  AREIT's  earnings  and  portfolio  occupancy  rate  are expected to remain stable going forward, due to the lack of new potential acquisition targets, coupled  with  the  high  valuation  it  is  currently  trading  at  (1.31x  P/B  and  FY13  forecasted dividend yield of 5.7%), we believe this counter is fairly priced at the moment. We maintain our NEUTRAL view on AREIT with a DDM based (COE: 7.3%; TGR: 1.0%) TP of S$2.67.

Consolidation  of  portfolio  in  the  near  term.  As highlighted by management previously, given a relatively tight industrial property market in Singapore at the moment, acquisition of good quality industrial properties is becoming more challenging. Going forward, apart from the  acquisitions  previously  announced,  AREIT  aims  to  consolidate  its  portfolio  and  grow through asset enhancements. Properties in the portfolio to undergo AEIs in the subsequent quarters include 31 International Business Park, Xilin Districentre Building D, Tech Block II, 1 Changi Business Park Ave 1 and 31 Ubi Road 1.

SSD  may  have  limited  impact  on  investors'  interest  in  industrial  space.  Singapore government recently introduced a Seller's stamp duty (SSD) on industrial properties for the first time, as it tries to rein in market speculation that has resulted in doubling in prices over the  last  three  years.  However,  as  the  market  continues  to  be  flooded  by  liquidity  amid  a prolonged low interest rate environment, we believe the capital value of industrial properties will  continue  to  grow in  2013, albeit  at a slower  rate. In addition,  as  the  jump  in  industrial capital value was in-part due to a spill-over effects of the ABSD introduced to the residential sector  late  last  year.    As  more  cooling-measures  were  released  recently  to  control  the residential market prices, the effects of this spill-over is likely to continue in 2013.
 
Fairly  valued  at  this  moment.  Going  forward,  although  we  believe  the  stable  dividend yield  from AREIT remains  attractive  to investors,  particularly on  the back of  high liquidity, prolonged  low  interest  rate  environment  and  a  strong  Singapore  currency;  we  believe AREIT is currently fair valued at the moment and maintain NEUTRAL with a TP of S$2.67.

Currently  trading  at  4.5%  spread  to  10-year  bond  yield.  AREIT  is  currently trading at 4.5% spread to 10-year bond yield which is 149Bps above its pre-crisis mean  spread  (3.0%)  based  on  FY13  DPU.  Our  TP  of  S$2.670  translates  to  a spread of 2.9%.

Source: OSK