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

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. 

Positive rental reversions across all property segments 

  • 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 to provide another growth avenue AREIT 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, in our view, to explore more inorganic growth opportunities. 

Exposure to higher-value industrial sub-segments 

  • 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. 

Full impact of Australian contributions from FY17 

  • 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. 

Strong growth drivers underline our Add rating 

  • 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