Ascendas REIT - DBS Research 2015-12-14: Diversifying Out Of Hometown

Ascendas REIT - DBS Vickers 2015-12-14: Diversifying Out Of Hometown Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI 

Ascendas REIT - Diversifying Out Of Hometown 

Rebounding occupancy holds potential earnings upside. 

  • Portfolio occupancy rates bottomed out in 3QCY15, increasing marginally to 88.9% (vs 88.6% in Jun-15). 
  • Looking ahead, with vacancy rates standing at c.11%, we believe that A-REIT has upside to earnings if the unoccupied space can be filled, which is not included in our earnings forecast. 
  • Modest rental growth but still expected to remain positive despite market headwinds. 
  • A-REIT recorded 9.1% reversion in its 2QFY16 (FYE Mar) results, boosted by 13.2% rise in rents achieved for its Business Parks/Science Parks. 
  • Looking ahead, we expect rental reversion momentum to slow but still remain positive based on the positive spread between market and passing rent levels over 2H16 – FY17.This will provide a buffer against expected falling market rents. 

Acquisitions to drive earnings. 

  • A-REIT has acquired assets worth more than S$1bn in assets in Singapore and Australia, in search for higher returns. The medium-term strategy is to have overseas exposure form c.30% of the A-REIT revenues. 
  • In addition, A-REIT has a visible pipeline of over S$1bn worth of business park assets under the Sponsor’s balance sheet which can be acquired in the medium term. 


  • Our DCF-based TP is lowered to S$2.52 as we roll forward our valuations and update our assumptions from the recent placement. 
  • Maintain BUY given total returns of >10%. 

Key Risks to Our View: 

Interest rate risk. 

  • An increase in lending rates will negatively impact distributions. However, A-REIT's strategy has been to actively manage its exposure and currently has c.70% of its interest cost hedged into fixed rates.

Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2015-12-14
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.52 Down 2.57