Ascendas REIT - RHB Invest 2015-10-23: Stellar Quarterly Results

Ascendas REIT - RHB Invest 2015-10-23: Stellar Quarterly Results Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI 

Ascendas REIT - Stellar Quarterly Results 

  • 2Q/1HFY16 results met our expectations as A-REIT announced DPU growth of 13.7%/9.6% YoY. 
  • Maintain BUY with a higher SGD2.55 TP (10.4% total return). 
  • Strong rental reversion of 9.1% was registered last quarter, mainly driven by renewals within the business and science park segment. 
  • It also enjoyed stronger contributions from new properties such as Aperia and The Kendall, coupled with higher occupancy from assets such as 40 Penjuru Lane. 

 Stellar results in line with expectations. 

  • Ascendas REIT’s (A-REIT) 2Q/1HFY16 (Mar) DPU grew 13.7%/9.6% YoY, underpinned by higher occupancy rates, 9.1% (from 6.6%) positive rental reversion, and contributions from its new acquisitions (Aperia, Hyflux Innovation Centre and The Kendall), accounting for 52.1% of our full-year estimate. 
  • Excluding a one-off distribution of taxable income from operations of SGD6.5m, 2QFY16 DPU growth would have been 6.3% YoY. We think that this is a stellar performance despite the challenging industrial leasing market in Singapore. 

 What’s driving the high single-digit rental reversion? 

  • In the last quarter, A-REIT renewed over 1.6m sq ft of net lettable area (NLA), achieving an increase of 2.0-13.2% in renewal rates across different subsegments. The best-performing sub-segment was business and science parks, which is also the reason A-REIT is chosen as our best industrial REIT pick as ~34% of its portfolio is exposed to the business and science park space. 

 Single-user asset (SUA) conversion at tail-end. 

  • As of 3Q15, it had only 2.3% of property income from SUAs expiring. We estimate that it is likely to see its multi-tenanted buildings’ (MTB) occupancy bottoming out by end-FY16, which should boost its resilience and property income into FY17. 

 A-REIT remains attractive to us; still a BUY. 

  • A-REIT has SGD23.7m and SGD101.6m worth of development and asset enhancement works respectively due for completion by 2Q16 to buffer downside risks. We like A-REIT for its well-diversified income stream and business-park exposure. 
  • In addition, A-REIT is an industrial bulwark with an A3-credit rating, allowing it to have longer-term borrowings compared to its peers. 
  • In view of these, we maintain our BUY recommendation with a higher TP of SGD2.55 (from SGD2.35).

Ivan Looi RHB Research | Ong Kian Lin RHB Research | http://www.rhbinvest.com.sg/ 2015-10-23
RHB Research SGX Stock Analyst Report BUY Maintain BUY 2.55 Up 2.35