Ascendas REIT - Maybank Kim Eng 2016-01-25: Resiliently chugging away

Ascendas REIT - Maybank Kim Eng 2016-01-25: Resiliently chugging away Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI 

Ascendas REIT (AREIT SP) - Resiliently chugging away 

Resilient despite poor sentiment, maintain HOLD 

  • 3Q3/16 results were within expectations with core operating metrics occupancy and rent reversions demonstrating resilience. 
  • The supply outlook for 2016 remains challenging, compounded by on-going economic weakness, but we expect supply woes to taper dramatically by 2017. 
  • In the meantime, maintain HOLD, TP SGD 2.23 based on 7% yield target. 

A respectable 3Q result 

  • 9M revenue and DPU formed 75.2% and 77% of full year expectations, with 3Q revenue and DPU growing 12.9% and 9.9% YoY mainly on the back of contributions from new properties: acquisitions The Kendall and Aussie Logistics Portfolio, post asset enhancement at DBS Asia Hub, and occupancy differences at the Aperia compared to the same period last year (92.7% vs 53.6%). 
  • In terms of core operating numbers, respectable rent reversions of 7.3% for the quarter also contributed. 
  • Occupancy in SG held steady at 88.9%, declining from 2Q’s 89.8% only because of the inclusion of a new empty block at 40 Penjuru Lane. Otherwise, on a same-store basis, occupancy was 90.3%, vs 90.6% (QoQ) and 89.2% (YoY). 
  • Overall, portfolio occupancy lifted QoQ from 89% to 89.2%, mainly due to the Aussie properties. 

Supply woes to end in 2016, 2017 looks much rosier 

  • A respectable result, but with a slowing economy and still formidable industrial supply in 2016 at 2.2x historical demand, occupancy and rent reversions are still under pressure. But the silver lining is that 2017 and 2018 will see supply taper dramatically to 0.9x and 0.4x historical demand. 
  • The supply of business parks, which AREIT is 34% exposed to by NPI, is virtually zero in 2017-18. 

DPU to be resilient from recent acquisitions 

  • We judge downside risk to DPU as minimal in 2016 as the recent SGD1.6b of acquisitions (Aussie logistics assets and business park One@Changi) are expected to keep DPU growing in the low single digits. 
  • The acquisitions have a blended yield of 6% financed at a blended cost of 5% (debt, perps, new equity).

Joshua Tan Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-01-25
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 2.23 Down 2.28