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

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 

Raising DPUs; compressing yield target; U/G BUY 

  • 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. 

Growth from One@Changi, Australia, Aperia 

  • 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. 

Budget 2016 to help AREIT’s tenants 

  • 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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