Ascendas REIT - CIMB Research 2016-01-25: Steady as she goes

Ascendas REIT - CIMB Research 2016-01-25: Steady as she goes Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI 

Ascendas REIT - Steady as she goes 

  • 9MFY16 DPU of 11.95 Scts (+9.7% yoy) was within our expectations, forming 74% of our full-year forecast. 3QFY16 DPU of 3.95 Scts (+9.9% yoy) at 24%. 
  • Portfolio occupancy inched up to 89.2% in 3QFY16 thanks to Australian portfolio. 
  • Positive rental reversion of +7.3%; expect low-single digit for FY17. 
  • One@Changi City & 6-20 Clunies Ross Street to contribute from FY17 onwards. 
  • Maintain Add with a lower DDM-based target price (S$2.42). 

■ 3QFY16 highlights: propelled by organic and inorganic drivers 

  • 3QFY16 DPU growth of +9.9% yoy came from contributions from new properties (The Kendall, acquired in Mar 15 and Australian portfolio, acquired in Nov 15), completion of AEIs such as DBS Asia Hub Phase 2, improvement in occupancy at Aperia (92.7% in 3Q16 vs. 53.6% in 3Q15) and rental reversion of +7.3% over the preceding contracted rates. Of note, CEO Mr Tan Ser Ping will retire effective end-Mar 16 and Mr Chia Nam Toon, CFO and Chief Corporate Officer of Ascendas-Singbridge Group, will take over. 

■ Portfolio occupancy largely stable 

  • Portfolio occupancy inched up to 89.2% in 3QFY16 (2QFY16: 89%; 3QFY15: 86.8%) due to the effects of the Australian portfolio coming through (94.4% occupancy rate). 
  • Singapore occupancy slipped to 88.9% (2QFY16: 89.8%) owing to the addition of a newly-completed block at 40 Penjuru Lane. 
  • The manager is talking to potential tenants for around half the space of the new block. On a same-store basis, Singapore occupancies were largely stable. 

■ Expect low-single digit rental reversion for FY17 

  • AREIT achieved positive rental reversion across all segments of its Singapore portfolio in 3QFY16. The new leases were secured with a weighted average lease term of 3.1 years, and were renewed with a weighted average rental reversion of +7.3%. c.6.2% of the gross revenue is due for renewal in 4QFY16; and 20.1% in FY17. 
  • As the average passing rents for the space due for renewal in FY17 is close to market rents, we are expecting low-single digit rental reversion for the year. 

■ One@Changi City & Clunies to come on stream in 1QCY16 

  • The proposed acquisitions of One@Changi City in Singapore for S$420m and 6-20 Clunies Ross Street (Clunies) in Australia for A$76.6m should be completed in 1QCY16; and should contribute to the Trust’s earnings from FY17 onwards. 
  • The company expects One@Changi to generate an initial NPI yield of 5.9%. Further, 92% of its leased space is c.14% below the market rent. 
  • Meanwhile, it expects Clunies to generate an initial NPI yield of 6.6%, with in-built step up of 3.5-4% p.a. 

■ Maintain Add with a lower target price of S$2.42 

  • We maintain Add on AREIT with a lower DDM-based target price, as we incorporate the acquisitions of One@Changi City and Clunies, as well as the associated equity fund raising. 
  • We continue to like AREIT for its stability and exposure to higher-value industrial sub-segments (c.52% of the trust’s AUM). 
  • Among the industrial sub-segments, we deem that business parks should remain healthy, with an absence of new completions post- 2016 and higher pre-leasing levels.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-01-25
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 2.42 Down 2.57