Ascendas REIT - UOB Kay Hian 2017-04-26: 1Q17 Results In Line

REITs − Singapore - UOB Kay Hian 2017-04-26: 1Q17: Results Of AREIT (In Line) ASCENDAS REAL ESTATE INV TRUST A17U.SI

REITs − Singapore - 1Q17: Results Of AREIT (In Line), MIT (Above), FCT (In Line)

  • AREIT’s results came in in line with our expectations. 
  • Maintain BUY on AREIT with a higher target price of S$2.75 (previously S$2.71). 
  • Maintain sector OVERWEIGHT.



WHAT’S NEW

  • Ascendas REIT (AREIT) has reported quarterly results.


ACTION 


Results in line with expectations. 

  • Maintain BUY with a higher target price of S$2.75, based on a two-stage dividend discount model (required rate of return: 6.4%, terminal growth rate: 1.2%). 
  • 4QFY17 gross revenue grew 2.4% yoy, underpinned by acquisitions of DNV/DSO assets in Feb, ONE@Changi City and one Australian asset. 
  • NPI increased 9.0% yoy, as property opex declined 9.4% yoy (lower utility and property tax expenses). 
  • While distributable income was up 25.5% for the quarter, 4QFY17 DPU of 3.852 S cents grew a slower 13% yoy due to performance fees charged. 
  • The results came in within our expectations, with FY17 DPU representing 100.9% of full-year forecast. We raise our target price to S$2.75 from S$2.71 by rolling forward our valuations.

Positive rental reversion of 3.2% portfolio-wide in 4QFY17. 

  • This was underpinned by Business & Science Parks (+5.2%), Light Industrial (+0.7%) and Integrated Developments (+9.2%), partially offset by Logistics & Distribution (-18.8%) and Hi-Specs Industrial (-3.4%). 
  • The Business & Science Parks segment accounts for nearly 40% and 26% of overall expiring leases in FY17 and FY18 respectively. 
  • Management remains cautiously optimistic, expecting flattish rental reversion in Singapore for FY18. It also intends to leverage on the parent group’s marketing strength to attract new MNC leases.

Modest portfolio valuation gains of 1% yoy, on a same-store basis. 

  • Portfolio cap rates saw a 5bp yoy compression to reach 6.29%. AREIT’s total portfolio of 129 assets was valued at S$9.8b as of 4QFY17.
  • Well-spread out lease expiry profile, with 16.6% of assets by rental income due for renewal in FY18, and 16.4% due in FY18. Within the Singapore portfolio, single-user assets only account for 0.9% and 0.8% of expiries in FY17 and FY18 respectively.
  • Management also expects upside upon backfilling of the 11.4% vacant space in its Singapore portfolio.

Likely beneficiary expansion of muted supply and healthy pre-commitments in business park micro-market. 

  • With business/science parks in Singapore accounting for 37% of its portfolio value, AREIT is likely to benefit from zero notable uncommitted business/science park space in the near term (CBRE estimates).

Acquisition strategy. 

  • Management’s preferred target geography lies in Australia, with management indicating that it reviewed about S$6b worth of deals in Australia alone last year before entering into two acquisitions valued at S$225m. 
  • The REIT manager has not ruled out further expansion of its Australian footprint (14% of AUM as of 4QFY17), and remains open to potential acquisitions in China.






Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2017-04-26
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.75 Up 2.710
HOLD Maintain HOLD 2.150 Same 2.150
HOLD Maintain HOLD 1.690 Up 1.600



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