Ascendas REIT
ASCENDAS REAL ESTATE INV TRUST
A17U.SI
Ascendas REIT - Diversifying Out Of Hometown
Rebounding occupancy holds potential earnings upside.
- Portfolio occupancy rates bottomed out in 3QCY15, increasing marginally to 88.9% (vs 88.6% in Jun-15).
- Looking ahead, with vacancy rates standing at c.11%, we believe that A-REIT has upside to earnings if the unoccupied space can be filled, which is not included in our earnings forecast.
- Modest rental growth but still expected to remain positive despite market headwinds.
- A-REIT recorded 9.1% reversion in its 2QFY16 (FYE Mar) results, boosted by 13.2% rise in rents achieved for its Business Parks/Science Parks.
- Looking ahead, we expect rental reversion momentum to slow but still remain positive based on the positive spread between market and passing rent levels over 2H16 – FY17.This will provide a buffer against expected falling market rents.
Acquisitions to drive earnings.
- A-REIT has acquired assets worth more than S$1bn in assets in Singapore and Australia, in search for higher returns. The medium-term strategy is to have overseas exposure form c.30% of the A-REIT revenues.
- In addition, A-REIT has a visible pipeline of over S$1bn worth of business park assets under the Sponsor’s balance sheet which can be acquired in the medium term.
Valuation:
- Our DCF-based TP is lowered to S$2.52 as we roll forward our valuations and update our assumptions from the recent placement.
- Maintain BUY given total returns of >10%.
Key Risks to Our View:
Interest rate risk.
- An increase in lending rates will negatively impact distributions. However, A-REIT's strategy has been to actively manage its exposure and currently has c.70% of its interest cost hedged into fixed rates.
Derek Tan
DBS Vickers
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http://www.dbsvickers.com/
2015-12-14
DBS Vickers
SGX Stock
Analyst Report
2.52
Down
2.57
