We believe that current price for A-REIT reflects a drastic 40% vacancy levels in its MTB(Multi-Tenanted Buildings) portfolio, which in our view is unlikely to occur. Earnings visibility is boosted by the fact that c43% of A-REIT’s income is locked-in over the next 7.6 years, based on our estimates. At current price levels, investors are getting an attractive FY10-11 yield of 11% for a blue –chip backed reit with strong financial flexibility, good access to credit and an experienced management team which will steer the reit to emerge stronger post the current recession. Maintain BUY, TP S$1.51 based on DCF.

Emerging stronger post recapitalization. With fresh capital of S$408m in its coffers post its recapitalization efforts, A-REIT has emerged as one of the financially stronger reits with a low gearing of 33%(rising to c37% post inclusion of new development properties). Interest cover is still expected to remain high at 4.2x over FY10-11.

Earnings resilience expected. Even with a 15% increase in vacancies assumed in its Multi-tenanted Buildings (MTB) portfolio, A-REIT is expected to sustain yields of 11% over FY10-11F, supported by its portfolio of Sales & Leaseback (SLB) properties (43% of revenues) backed by an average 7.6 yrs.

40% vacancy levels assumed in stock price. Based on our estimates, the current stock price assumes a relatively drastic scenario of a 40% drop in occupancy levels in its MTB portfolio. We view that the likelihood of such a scenario occurring is unlikely given pro-active efforts from the reit in engaging tenants and government initiatives to help SMEs reduce business costs.

Maintain BUY, TP S$1.51. We maintain BUY on A-REIT, TP $1.51 maintained based on DCF. Barring any unforeseen circumstances, we believe that A-REIT should deliver a relatively stable FY10-11 yield of 11%.