Ascendas REIT
ASCENDAS REAL ESTATE INV TRUST
A17U.SI
Ascendas REIT - Powering ahead
Maintain BUY, TP S$2.55.
- We continue to believe A-REIT will deliver stable returns, supported by a prospective yield of 6.0- 6.1%.
- The Manager, under the new CEO, Mr Chia Nam Toon, will continue to strive to deliver growth and value through a disciplined approach.
- Our numbers are tweaked slightly as we update them to reflect recent divestments in China.
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.
Acquisitions to drive earnings.
- A-REIT has acquired assets worth more than S$1bn in Singapore and Australia in FY16F and is searching 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.
Valuation:
- Our DCF-based TP is tweaked to S$2.55 as we account for the recent divestments in China. 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
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Mervin Song CFA
DBS Vickers
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http://www.dbsvickers.com/
2016-07-12
DBS Vickers
SGX Stock
Analyst Report
2.55
up
2.50
