Ascendas REIT - CIMB Research 2015-12-09: Growth from organic and inorganic drivers

Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - Growth from organic and inorganic drivers

Positive rental reversion from under-rented properties, uplift to persist through 2HFY16-FY17.
AEIs in China and Singapore could provide another avenue of growth.
Exposure to higher-value industrial sub-segments.
Full impact of Australian contributions from FY17.
Strong growth drivers underline our Add rating, with unchanged TP of S$2.57.

Property occupancy inched up to 89% in 2QFY16 and rental reversions registered +9.1% over preceding levels.
The strongest rental reversions were recorded for business parks space (+13.2%), while other segments saw 2-5.5% 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 rates. It has a remaining 10.2% and 21.2% of rental income to be renewed between 2HFY16 and FY17.

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, in our view, to explore more inorganic growth opportunities.

Business and science parks as well as hi-spec industrials make up around 60% of the trust’s AUM. In addition, only 13.4% of AREIT’s tenants are from the traditional manufacturing sector; while the remaining tenants include industry players from IT, pharmaceutical, media, telecoms, data storage providers and logistics.
Among the industrial sub-segments, we are most positive on business parks given the easing supply (no upcoming supply post-2016) and upticks in occupancy.

We expect the acquisition of the S$1bn Australian logistics real estate portfolio 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 be the eight-largest logistics property owner in Australia and provides a strong platform to expand through partnerships with real estate partners in the country.

We expect continued positive rental reversions, AEIs and Australian contributions to drive FY16 and FY17 DPU growth of 11% and 5%, respectively.
We maintain our Add rating with an unchanged DDM-based target price.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-12-09

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