Ascendas REIT - DBS Research 2016-06-10: Optimising portfolio returns

Ascendas REIT - DBS Research 2016-06-10: Optimising portfolio returns Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI 

Ascendas REIT - Optimising portfolio returns

  • Divesting assets in China; proceeds of S$186m for two properties are above cost.
  • Gearing to head down towards c.36%.
  • Realigning portfolio to key markets of Singapore and Australia with larger scale; China strategy remains opportunistic.
  • BUY, TP S$2.50 maintained.

What has happened?

Strategic divestments in China; reaping proceeds of S$186m.

  • A-REIT has announced the divestment of Jiashan Logistics Centre in China for S$26m (RMB 125m) to Goodman Developments Asia and GCLP Developments No. 3 (BVI) Limited. A-REIT is expected to realise a gain of about S$5.1m from this sale over the development cost.
  • This comes on the back of the recent divestment of Ascendas Z-Link in China for S$160m (RMB 760m), which represents a significant gain above the original price of S$62m paid in 2011.

Our thoughts

Improved financial metrics. 

  • Gearing will reduce to to around 36.0% from 37.2% post the sale of these 2 properties, assuming that A-REIT repays existing debt.

Realignment of portfolio to markets of scale. 

  • While not sizeable in nature, the divestments are positive as it will enable A-REIT to realise value for its investments in China, enabling the REIT to channel the proceeds to other sources. 
  • It also streamlines its portfolio to its key markets of Singapore and Australia in which it has operational scale. 
  • While China remains a market that management remains keen on investing, the lack of sizeable investments will mean that the REIT is likely to struggle with efficiencies.

BUY, TP S$2.50. 

  • We continue to like A-REIT for its consistent delivery of acquisitions while its diversified portfolio of properties is expected to demonstrate resiliency in times of economic uncertainty.

Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-06-10
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.50 Same 2.50