Ascendas REIT - CIMB Research 2016-05-06: Positioned for steady growth

Ascendas REIT - CIMB Research 2016-05-06: Positioned for steady growth Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI 

Ascendas REIT - Positioned for steady growth

  • FY16 DPU of 15.36 Scts (+5.2% yoy) met consensus and our forecasts at 102% of our FY16F.
  • 4QFY16 DPU of 3.41 Scts (-8.1% yoy) formed 23% of our FY16F.
  • Buoyed by acquisitions, income available for distribution rose 7.7% yoy for 4QFY16. Booked a net revaluation loss of S$6.9m, mainly due to Australia.
  • +5.1% rental reversion in the quarter. Portfolio occupancy dropped 1.6% pts qoq to 87.6%. WALE stood at 3.7 years, with 19.4% of revenue up for renewal.

4QFY16: buoyed by acquisitions

  • Buoyed by acquisitions of The Kendall, the Australian portfolio and ONE@Changi City, 4QFY16 income available for distribution rose 7.7% yoy to S$89.1m. 
  • Additionally, the group achieved +7% rental reversion for FY16 and +5.1% for the quarter. The positive rental reversion was registered across all segments. 
  • 4QFY16 DPU declined 8.1% yoy due to the performance fees of S$9m and a larger unit-base.

Investment management and capital recycling

  • In FY16, AREIT completed c.S$1.5bn of acquisitions (the Australian portfolio, 6-20 Clunies Ross Street and ONE@Changi City), c.S$44m of development projects (DBS Asia Hb Phase 2 and Jiashan Logistics Centre) and c.S$96m of AEIs. 
  • It also sold 26 Senoko Way and BBR Building for S$38.7m and realised S$15.8m in capital gains. In Apr 16, the manager sold Four Acres Singapore to Unilever Asia for S$34m, c.11% higher than the development cost.

Portfolio occupancy dropped 1.6% pts qoq to 87.6% in 4Q16

  • The fall stemmed from Jiashan Logistics Centre, which was completed in Mar 16 and unoccupied. 34% of its space is under negotiation. 
  • Singapore occupancy declined 1% pts qoq to 87.9% due to the single tenant lease expiry at IDS Logistics Corporate HQ
  • Excluding IDS, Singapore occupancy stood at 88.7%. 
  • Occupancy in Australia was stable at 94.7%.

Leasing update – Singapore

  • Portfolio WALE stood at 3.7 years, with 19.4% of gross revenue due for renewal in FY17. In Singapore, 21.3% of gross revenue is due for renewal, the typical annual average for AREIT. 
  • 3.1% of Singapore gross revenue pertains to seven STBs (NLA c.100,000 sq m). 
  • One of the STB leases has been renewed, three likely to be renewed and three under negotiation. 
  • With market rate slightly above passing rental for most of the MTB leases due for renewal, we project flat or low-single digit rental reversion.

Positioned for steady growth; upgrade to Add from Hold

  • With the full-year effect of acquisitions to be felt in FY17, we expect AREIT to deliver 2.1% DPU growth vs. flat or DPU declines for the other industrial S-REITs. 
  • We believe that the group will focus on enhancing its Australia portfolio in FY17, shoring up the portfolio with 1-2 complementary acquisitions. 
  • Given the recent retracement in share price, we upgrade the stock to Add from Hold, with a higher DDM-based target price (S$2.52). 
  • We factor in a higher LTG of 2.5% (prev. 2%) as there is no business park supply after 2016.

YEO Zhi Bin CIMB Securities | LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2016-05-06
CIMB Securities SGX Stock Analyst Report ADD Upgrade HOLD 2.52 Up 2.41