Ascendas REIT - OCBC Investment 2015-10-23: Sturdy results; one-off boost to DPU

Ascendas REIT - OCBC Investment 2015-10-23: Sturdy results; one-off boost to DPU Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI 

Ascendas REIT: Sturdy results; one-off boost to DPU 

 2QFY16 DPU grew 13.7% YoY 
 Occupancy rate inched up slightly 
 No change in rental reversion guidance 

2QFY16 results within our expectations 

  • Ascendas REIT (A-REIT) reported a sturdy set of 2QFY16 results which came in within our expectations. 
  • Gross revenue grew 10.8% YoY to S$182.6m due to contributions from completed AEIs and acquisitions, coupled with positive rental uplifts on renewals and higher occupancy at certain properties. 
  • DPU jumped 13.7% YoY to 4.16 S cents, but this was partly boosted by a one-off S$6.5m distribution of taxable income from operations arising from a rollover adjustment related to a ruling by IRAS on the non-deductibility of certain upfront fees incurred in FY09/10. 
  • Even if we exclude this, A-REIT's adjusted DPU of 3.889 S cents still translated into a growth of 6.3% YoY. 
  • For 1HFY16, A-REIT's gross revenue increased 10.7% to S$363.1m, forming 49.8% of our FY16 forecasts. DPU was up 9.6% to 8.001 S cents, but if we make the same adjustment as highlighted earlier, growth came in at 5.9% to 7.73 S cents. This constituted 50.1% of our full-year projection. 

Healthy rental reversions of 9.1% achieved 

  • During the quarter, A-REIT achieved positive rental reversions of 9.1% for its Singapore multi-tenanted properties portfolio, with the main driver coming from the Business & Science Parks segment (+13.2%). 
  • As the current market rental rate is still above the weighted average passing rents for most of A-REIT's multi-tenanted space due for renewal in FY16, management has kept its guidance for a mid-single digit rental reversion for FY16. A balance of 10.2% of AREIT's property income is due for renewal for the remainder of the financial year. 
  • Overall portfolio occupancy improved slightly from 88.8% to 89.0%, its fourth consecutive quarter of QoQ increase. 

Maintain BUY 

  • In terms of financial position, A-REIT's aggregate leverage ratio stood at 34.6%, as at 30 Sep 2015. This is expected to be increased to 37.8% once A-REIT completes the acquisition of its Australian logistics portfolio. 
  • Currently, 72.1% of its borrowings have been hedged for a weighted average term of 3.4 years. 
  • We maintain our forecasts, BUY rating and S$2.58 fair value estimate on A-REIT. The stock is currently trading at FY16F P/B ratio of 1.11x and distribution yield of 6.3%.%.

Wong Teck Ching Andy OCBC Securities | http://www.ocbcresearch.com/ 2015-10-23
OCBC Securities SGX Stock Analyst Report BUY MAINTAIN BUY 2.58 SAME 2.58