Ascendas REIT - CIMB Research 2016-07-22: 1QFY17 Emphatic start

Ascendas REIT - CIMB Research 2016-07-22: 1QFY17 Emphatic start Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI 

Ascendas REIT 1QFY17: Emphatic start

  • At 26% of our full-year forecast, 1QFY17 DPU of 3.996 Scts (+4% yoy) met consensus and our expectations.
  • Performance driven by new acquisitions (Australian portfolio and ONE@Changi City), as well as increase in Singapore occupancy and +4.1% rental reversion.
  • YTD, AREIT has completed three divestments worth S$214m. It has also completed three AEIS and another three are currently ongoing.
  • As flagged, one single-tenanted lease in Australia did not renew but we expect AREIT to backfill the space.
  • Maintain Add with a higher DDM-TP. We like AREIT for its higher-spec portfolio.

1QFY17 results highlights

  • Boosted by new acquisitions, AREIT’s total amount available for distribution grew 15.5% yoy to S$106.9m. DPU grew 4% yoy on enlarged unit base (from the EFR and issuance of units for acquisition of ONE in FY16). 
  • As at 1QFY17, S$14m of the S$300m ECS (Exchangeable Collateralised Securities) have been converted into units. The ECS is in the money (exchange price: S$2.0187/unit); and assuming the remaining S$288m ECS is fully converted, the number of new units would be 5.3% of the total outstanding units.

Capital recycling & AEIs

  • YTD, AREIT has divested Four Acres Singapore (S$34m), A-REIT Jiashan Logistics Centre (S$25.4m) and Ascendas Z-Link (S$154.7m). 
  • Gearing is set to improve to 36.2% (1QFY17: 37%) when divestment of Z-Link is recorded next quarter. 
  • Three AEIs worth S$24.6m (2 Senoko South Road, The Kendall and Acer Building) were completed in 1QFY16. Another 3 are ongoing and will cost S$72.6m: the most extensive, 279 Jalan Ahmad Ibrahim (f.k.a IDS Logistics Corporate HQ), started in 1Q and will cost S$61.4m.

Achieved 4.1% rental reversion

  • Overall Singapore occupancy improved 0.4% pts qoq to 88.3%, mainly due to new take up at 40 Penjuru Lane and 5 Toh Guan Road East in the Logistics cluster. 
  • AREIT achieved a 4.1% rental reversion for its Singapore portfolio, with positive rental reversion registered across all segments. 14.9% of GRI is up for renewal in the rest of FY17. 
  • We expect rental reversion in the low-single digits as the current market rate is just slightly above passing rents.

As flagged, Australia occupancy decreased to 90.9% from 94.7%

  • As flagged, Australia occupancy decreased to 90.9% from 94.7% due to the expiry of a single tenant lease at 494 Great Western Highway (Sydney). 
  • We understand that the Manager plans to lease the space on a short-term basis, before signing a longer-term lease with an end-tenant towards the end of the year.

Maintain Add with higher DDM-target price

  • We continue to like AREIT for its higher-spec portfolio, and expect the stock to benefit from Singapore’s shift to higher-value activities. Business parks, hi-specs industrials and data centres form 54% of the trust’s AUM. 
  • Nearer-term, we believe that the Manager could enhance its Australian portfolio with 1-2 complementary acquisitions. 
  • Maintain Add with a higher DDM-target price (of S$2.61) (result of across-the-board cut in Rf).

YEO Zhi Bin CIMB Securities | LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2016-07-22
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 2.61 Up 2.52