Ascendas REIT - DBS Vickers 2016-01-25: Bolstered By Its Australian Venture

Ascendas REIT - DBS Vickers 2016-01-25: Bolstered By Its Australian Venture Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI 

Ascendas REIT - Bolstered By Its Australian Venture 

  • 3Q16 results boosted by acquisitions in Australia 
  • Steady earnings profile; rental reversions to moderate but completion of proposed acquisitions in the coming years to support earnings in the next few years 
  • BUY maintained, TP S$2.52 

Boosted by Australia - 3Q16 results were in line

  • 3Q16 revenues and net property income (NPI) rose by 12.9% and 24.1% to S$193.8m and S$142.1m respectively. 
  • Distributable income rose by 11.7% to S$96.5m (DPU rose by a smaller 9.9% to 3.946 Scts mainly due to an enlarged unit base from placement). 
  • The stronger operational performance was mainly due to an expanded portfolio :
    1. the acquisition of the Australian portfolio (26 logistics assets) and Kendall (located at Science Park Singapore), 
    2. improvement in portfolio occupancy to 89.2% (vs 89.0% q-o-q) from the acquisition of the Australian portfolio. 
  • For Singapore, performance remained stable with occupancies steady at c.86.1% (multi-tenanted properties), -0.6bbs q-o-q, and positive rental reversion of c.7.3% for the quarter. 


Two more asset acquisitions 

  • We expect earnings to be boosted further by the proposed acquisition of 6-20 Clunies Ross Street worth A$76.6m (S$76.6m) @ 7.1% yield and One@Changi, a business park property in Singapore for S$420m at c.6.0% yield. These properties are expected to be funded from proceeds from the recent equity fund raising exercise. 
  • Post acquisition gearing is estimated to settle at around 37%; which is within the management’s long term 35%-40% target. 

Weak leasing environment. 

  • A-REIT has 26.2% of its leases expiring in FY16-17; where expiring rents (Business Parks, light industrial, warehouses and hi-tech buildings) are fairly close to market levels. As such, we expect the Manager to turn defensive in its leasing strategy, focusing on maintaining occupancies and forgoing rent increases. As such, rental reversions are expected to be flattish given the weak operating outlook. 
  • In addition, vacancy is over 10.1% at A-REIT’s multitenanted buildings (MTB) which present an upside risk to estimates if filled. 

Change in leadership as CEO Mr. Tan Ser Ping retires from his role 

  • A-REIT also reported that current CEO, Mr Tan Ser Ping will retire from his role from 1st April 2016 onwards. Under his leadership over the past 11 years, A-REIT has become on of the largest industrial S-REITs in Singapore 
  • Mr. Chia Nam Toon, Chief Financial Officer and Chief Corporate Officer of the Ascendas-Singbridge Group , will take-over as CEO from 1st April 2016. 
  • Given Mr. Chia current role and familiarity with the group, we believe that the transition will be smooth. 

BUY and S$2.52 TP maintained 

  • We remain attracted to A-REIT’s defensive earnings profile coupled with steady growth of c.2% CAGR over the coming 2 years. 
  • Recent price decline has raised forward yields towards 6.5%, which is attractive.

Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-01-25
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.52 Same 2.52