Ascendas REIT - Maybank Kim Eng 2016-04-12: Tight business park supply to spur growth

Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT (AREIT SP) - Tight business park supply to spur growth

We raise DPUs 0.4%/1.1%/4.3% to 15.3/15.9/16.4 Scts for FY3/16-18, mainly due to recent acquisitions, occupancy resilience, and tight supply of business parks in 2017.
We also revise yield targets lower in view of a compressed bond yield environment and re-peg AREIT’s yield target from 7% to 6.3% (-1SD below the mean).

Applied to FY3/18 DPU, TP is raised +16% to SGD2.60. U/G to BUY.
The tight valuation reflects our view that demand for industrial space is still resilient: 2015 saw net absorption of 14.4m sf while retail/office was negative.

DPU growth over the period is 4.8%/3.6%/3.5% based on our raised estimates.
For FY3/16-17, growth will come from the addition and subsequent full year contributions from One@Changi and Aussie Logistics, as well as Aperia’s occupancy ramp up from c.91% (year average) to full in FY3/17.
Tight business park supply to support further growth But the main change in our estimates comes in FY3/18, when business park supply is zero in 2017, and we expect business park/high-spec occupancy to increase 5.8pp/3.5pp respectively.
The demand for business parks in 2015 was exceptional with net absorption of 2.4m sf vs. net supply of 1.9m sf.
We expect 2016’s supply of 1.6m sf to have strong take-up as well.
Business parks and high-spec are the right product categories to be in as Singapore moves up the value creation/value-added chain.

AREIT has 1,410 tenants, the top 10 of which makes up 18.8% of rent; this suggests that a sizable proportion are SME tenants.
The recent 2016 budget is seen as beneficial to SMEs: addressing both cyclical risks (tax rebates, wage credits, working capital assistance) as well as structurally helping them scale up (automation grants, M&A tax allowance, double tax deductions for internationalization, support for R&D commercialization). We expect these moves to help reduce fears of occupancy risk.

Joshua Tan Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-12

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