Ascendas REIT - OCBC Investment 2016-05-06: Drag From Performance Fees in 4QFY16

Ascendas REIT - OCBC Investment 2016-05-06: Drag From Performance Fees in 4QFY16 Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI 


  • 4QFY16 DPU slipped 8.1% YoY
  • Positive FY16 rental reversions of 7.0%
  • Write-down of Australian portfolio

4QFY16 results within our expectations

  • Ascendas REIT (A-REIT) reported its 4QFY16 results which came in within our expectations. 
  • Gross revenue jumped 17.4% YoY to S$204.0m and this was driven by organic growth from higher occupancy at certain properties, coupled with contribution from the acquisitions of the Australian Portfolio, the Kendall and ONE@Changi City
  • However, DPU fell 8.1% YoY to 3.41 S cents due largely to higher performance fees of S$9.0m (4QFY15: nil) and an enlarged unit base. 
  • On a full-year basis, A-REIT’s FY16 gross revenue rose 13.0% to S$761.0m and formed 102.9% of our forecast. 
  • DPU of 15.357 S cents represented growth of 5.2% and accounted for 101.0% of projection.

Rental reversions to moderate

  • During the quarter, A-REIT delivered positive rental reversions of 5.1% in Singapore, and this resulted in a 7.0% uplift in renewal rates for FY16. 
  • Looking ahead, management guided that it expects rental reversion for FY17 to come in flat to the low-single digit level, as the current market rental is slightly above the weighted average passing rental for most of its multi-tenant space which is due for renewal. 
  • Overall portfolio occupancy stood at 87.6%, as at 31 Mar 2016, a slight decline of 1.6 ppt QoQ. 
  • Lower occupancy was registered in China as a result of the completion of A-REIT’s Jiashan Logistics Centre in Mar 2016. 
  • While the property is currently unoccupied, management is in talks with prospective tenants for approximately 34% of the space.

Roll forward valuations and maintain BUY

  • Following a revaluation exercise, A-REIT suffered a net revaluation loss of S$6.9m, with the main drag coming from a write-down of S$117m for its Australian assets. This was in turn caused by capitalised acquisition costs and a premium of 6.6% paid above the open market value of the Australian portfolio when A-REIT acquired it in 2015. 
  • We fine-tune our assumptions after factoring in A-REIT’s full-year results in our model, resulting in a slight increase of 0.5% for our FY17 DPU forecast. 
  • Rolling forward our valuations, we derive a higher fair value estimate of S$2.58 (previously S$2.50)
  • Maintain BUY on A-REIT, supported by potential total returns of 14%.

Wong Teck Ching Andy CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-05-06
OCBC Securities SGX Stock Analyst Report BUY MAINTAIN BUY 2.58 Up 2.50