ASCENDAS REAL ESTATE INV TRUST
A17U.SI
Lowered Growth Expectations
- Factor in lower market rents on weakening economy.
- FY3/16-18 DPUs cut by c.1.8%.
- TP SGD2.05, down from SGD2.27 on switch from DDM to yield target of 9%.
- Maintain HOLD.
What’s New
- Occupancy improvement in 1Q3/16 to 88.8% (4Q:87.7%) and rent reversion of 6.6% were admirable. However, economic growth risks are increasing, thus we expect the leasing environment to remain challenging.
- Factoring in 2015-17 market rent assumptions of - 1.4%/-2%/0% for factories, -1%/-2%/0% for warehouses and 0%/0%/3% for business parks causes us to expect that factory/warehouse rent reversions will surprise by a negative 2- 3.9% over FY3/17-18, while business parks could soften to c.2.9%.
- As such, our FY3/16-18 DPUs are cut to 14.7/14.9/14.9 cts from 14.8/15.0/15.5 cts. Areit is still likely to post mild growth from its business parks and integrated developments portfolios.
- On the positive side, 2016 would be the final year of oversupply in factories and warehouses. 2017 should be a recovery year if the economy improves.
What’s Our View
- We are changing our valuation methodology across all our REITs from DDM to yield targets to better reflect the current de-rating environment. Our target yield for Areit is 7.25% vs 7.5% for MIT and 9% for Cache.
- Areit should trade at a premium to peers given its diversified portfolio and greater exposure to more resilient subsectors business parks (35% of NPI) and integrated developments (7% of NPI).
- Applying 7.25% yield to our FY16 DPU lowers our TP to SGD2.05 from SGD2.27. Maintain HOLD.
Joshua Tan | http://www.maybank-ke.com.sg/ Maybank KE 2015-09-08
2.05
Down
2.27
