A-REIT announced it will raise approximately S$300 mn (10% market cap) via private placement at S$1.63–S$1.70/unit, which is at a 4-8% discount to its VWAP of S$1.7674.

This had come after January 2009’s S$400 mn fund raising (at S$1.16) where the proceeds were mainly used to pay down debt. This time, about 60% will be used to fund the Singtel development announced in May 2009 (11-12% yield-on-cost), while the rest is to fund future acquisitions. Proforma gearing will improve to 29.3% from 35.7%.

Though it seems slightly dilutive, we believe this is a pre-emptive fundraising for an acquisition pipeline at an accretive 8% yield. It is the strongest positioned among its peers, in terms of balance sheet and market share, to reignite the acquisition growth cycle. Acquisition growth is the most prevalent for industrial REITs.

Raise FY11-12E DPU forecasts by 1-5% as we assume the accretive acquisitions in FY11-12. We raise target price to S$1.86 from S$1.76. We continue to prefer AREIT as it is still trading at 7.2-7.7% forward yields, versus other big cap S-REIT 5.8-7.8%.