Maybank's Amanah Raya REIT - boosted by new assets

An attractive yield play. AAREIT’s 9M10 RM31.3m realised net profit (+38% YoY) was as we expected, but above consensus. We continue to like AAREIT for its attractive 8.9% 2011 yield (vs. 8.1% industry), earnings visibility and sustainability supported by long lease agreements with step-up features. We maintain our forecasts (+6% 3-year DPU CAGR) and RM1.19/sh DCF-derived TP.

Key highlights of 3Q10 results. 1) 36% YoY net profit growth was due to contributions from new assets i.e. Selayang Mall and Dana 13, which were acquired in May ’10. Sequentially, net profit was down by 11% due to a RM2m government compensation for the compulsory acquisition of AAREIT’s SEGi college driveway entrance in 2Q10, 2) gearing is maintained at 0.36x as at Sept ’10, and 3) AAREIT has proposed a 1.8 sen DPU (-3.0% YoY). Together with 3.8sen DPU in 1H10, YTD DPU is 5.6sen (or 95% payout), within our expectations.

Maintain forecasts.
We expect a 3-year DPU CAGR of 6% driven by: 1) full-year contributions from Dana 13 and Selayang Mall, 2) new PKNS asset contributions from 2011 onwards i.e. Kompleks PKNS (retail), the SACC mall (retail) in Shah Alam and Menara PKNS (office) in Petaling Jaya. These assets come with a 12 year lease agreement with step-up features, and 3) rental step-up from the existing assets. AAREIT’s total asset value is expected to rise by 30% to c.RM1.2b, from RM913.3m as at Dec ’09, post-PKNS asset acquisitions.

New shareholder boosts AAREIT’s corporate profile. AAREIT’s share price has performed well since Sept ’10, up by 5.1%. We believe the rise was partly due to the emergence of new shareholder, PKNS. AAREIT now has more acquisition opportunities as it can also tap into PKNS’ property portfolio, which includes existing assets like De Palma Hotels, Wisma PKNS as well as future property projects such as PJ Elevated City, PJ Sentral Garden City, Kelana Sports City.
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