Ascendas REIT - Maybank Kim Eng 2015-09-08: Lowered Growth Expectations.

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
HOLD Maintain HOLD 2.05 Down 2.27


Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......