Ascendas REIT - DBS Research 2016-05-18: Firepower To Acquire

Ascendas REIT - DBS Research 2016-05-18: Firepower to acquire Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI 

Ascendas REIT - Firepower to acquire 

  • Australia portfolio write-off a dampener to an otherwise good set of 4Q16 results 
  • Diversified portfolio in terms of asset class and geography to weather through uncertain times 
  • Slight drop in DPU estimates, factoring assumed conversion of Exchange Collateralised Securities   

Maintain BUY, TP S$2.50. 

  • We continue to believe A-REIT will deliver stable returns, supported by a prospective yield of 6.1%. 
  • The manager, under the new CEO, Nam Toon, will continue to strive to deliver growth and value through a disciplined approach. 
  • Gearing of 37% (c.34% post conversion of ECS) will enable the REIT with headroom to acquire. 

Modest rental growth but expected to remain positive despite market headwinds. 

  • A-REIT reported a 7.0% rise in average rentals during renewals in FY16 (5.1% in 4Q16) which in our view is a good showing despite ongoing headwinds. 
  • The rise came mainly from the Business & Science Park Segment (+6.6% in 4Q16/+9.6% in FY16) and Logistics & Distribution Centres (+7.4% in 4Q16/6.5% in FY16). 
  • Rental reversionary outlook is likely to turn more muted given closing gap between market and passing rental levels. 
  • Our estimates are revised downwards to account for potential dilution of ECS securities (estimated 147m new units issued from FY17F; gearing to drop to c.34%). 
  • We believe this to be conservative given the uncertainty on the timing of the conversion. 

Acquisitions to drive earnings. 

  • A-REIT has acquired assets worth more than S$1bn in Singapore and Australia in FY16F and is in the search for more acquisitions in its existing core markets, to complement a moderating growth profile. 
  • The medium-term target is to have overseas assets form c.30% of A-REIT’s revenues. 
  • In addition, A-REIT has a visible pipeline of over S$1bn worth of business park assets under the Sponsor’s balance sheet which can be acquired in the medium term. 


  • Our DCF-based TP is lowered to S$2.50 as price in potential dilution of S$300m of ECS in our estimates. 
  • Maintain BUY given total returns of > 10%. 

Key Risks to Our View: 

  • Interest rate risk. An increase in lending rates will negatively impact distributions. However, A-REIT's strategy has been to actively manage its exposure and it currently has c.70% of its interest cost hedged into fixed rates.

Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-05-18
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.50 Down 2.52