Ascendas REIT - CIMB Research 2015-10-23: Stable outlook

Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - Stable outlook

2Q DPU boosted by healthy organic growth and one-off distribution of S$6.5m.
Positive rental reversions across all property segments, uplift sustained into 2H.
AEIs in China and Singapore to provide another avenue of growth.
Greater impact of contributions from Australian portfolio acquisition to be felt from FY17.
Maintain Add, with an unchanged target price of S$2.57.

AREIT reported a 13.6% yoy rise in 2Q DPU to 4.16 Scts. This was underpinned by a 10.8% rise in revenue, thanks to the acquisition of Aperia and The Kendall, the completion of AEIs such as DBS Asia Hub P2, positive rental reversion and increased occupancy at certain properties.
In addition, there was also a S$6.5m one-off distribution of taxable income upon finalisation by IRAS on the non-deductibility of certain upfront financing fees incurred. Excluding this, DPU would have been 3.89 Scts, up 6.3% yoy.

Portfolio occupancy inched up to 89% and rental reversions registered +9.1% over preceeding levels. The strongest rental reversions were recorded for business parks space, +13.2%, while other segments saw between 2% and 5.5% uplift.
AREIT guided that it expects a mid-single digit uplift for rental reversions in FY16 as the average passing rents across all segments of properties are below spot rents. It has a remaining 10.2% and 21.2% of rental income to be renewed between 2HFY16 and FY17.

In addition, the trust is undertaking AEIs totaling S$94.9m at the Jiashan Logistics Facility in China and four properties in Singapore. These projects are scheduled to be completed in phases between 4Q15 to 2Q16.
With a gearing ratio of 37.8% (post Australian transaction), AREIT will have ample room to explore more inorganic growth opportunities.

The acquisition of the S$1013m Australian logistics real estate portfolio is expected to be completed in 4QCY15. The full impact of additional contributions is anticipated to be felt from FY17 onwards. This portfolio is expected to generate an initial 6.4% post-tax NPI yield with growth through inbuilt rental escalation clauses. The purchase has propelled AREIT to the eighth largest logistics property owner in Australia and provides a strong platform to expand through partnerships with real estate partners in the country.

1HFY3/16 core net profit was largely in line at 50% of our full-year forecast.
We raise our FY16 DPU marginally to 16.14 Scts to factor in the one-off distribution. Our DDM-based target price of S$2.57 is unchanged, and offers investors a total return of 11.5%.
We maintain an Add rating.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-10-23

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 2.57 Same 2.57