• Gross revenue and DPU in line with our forecast
• Headline 1.541 cents DPU boosted by 0.053 cents capital distribution
• Aggregate leverage significantly lowered to 35.7% in October
• Manager is committed to Unitholder interest and raising DPU going forward

POSITIVES

• Aggregate leverage lowered to 35.7%: This was after the Rights Issue and repayment of borrowings on 16 October. Aggregate leverage was 43.6% as of 31 September. The manager commented that the comfortable range for gearing is under 40%. Gearing would be allowed to go above 40% if it is in conjunction with a sizeable acquisition. Following which, the manager will look to raise new other capital (equity or perpetuals).
• Minimal leasing risk in 4Q17 with only 1.3% of portfolio GRI expiring: The next meaningful chunk of expiry comes from the CWT Commodity Hub master lease which expires progressively in 2018 (12% of portfolio NLA) and 2019 (10% of portfolio NLA). The manager says that the property is practically full. This helps to allay concerns of a rental cliff, should the property be converted to multi-tenancy.
• Occupancy remains high at 97.2%: Despite being marginally lower QoQ from 98.3%.

NEGATIVES

• Rent reversion of -5% during the quarter: However, the impact is not material or representative of the portfolio, as only <1% of portfolio NLA was renewed.
• 51 Alps Avenue rental dispute remains unresolved: The manager expressed optimism for it to be concluded by the end of the year.

Outlook

The outlook is stable. This is due to the use of proceeds from the Rights Issue to pare down debt. At the Trust level, debt headroom is now higher and this is favourable for acquisitions. Debt headroom is ~S$110 mn by our estimate (assuming 40% target leverage), potentially growing the portfolio by 9%. For Unitholders, FY18e DPU from operations is expected to be lower YoY due to the 18% dilution from the Rights Issue. However, this can be mitigated if the manager utilises the debt headroom to make acquisitions.

Maintain Neutral; unchanged target price of $0.82

Our forecast remains largely unchanged. Despite the 18% dilution from the Rights Issue, our FY18e DPU is only 2.3% lower YoY as we have been factoring-in a one-off top-up payment following a favourable resolution to the 51 Alps Avenue dispute.

Our target price represents an implied FY17e P/NAV multiple of 1.10x, which compares against the FTSE REIT Index forward 12-months P/NAV multiple of 1.07x.