Ascendas REIT
ASCENDAS REAL ESTATE INV TRUST
A17U.SI
Ascendas REIT - Steady returns boosted by Australia
- 1Q16 results in line; acquisitions continue to drive earnings.
- Rental reversions to turn flattish but upside will come from filing up close to 17% of vacant space at its multi-tenanted properties.
- Acquisitions to remain a key earnings driver.
- BUY, TP S$2.61.
Maintain BUY, TP revised to S$2.61.
- Ascendas REIT (A-REIT) should continue to deliver stable returns, with prospective yields of 6.1-6.2%.
- The current strong demand for yield plays is expected to support A-REIT’s share price in the immediate term.
- BUY!
Modest rental growth despite market headwinds.
- Average rentals rose 4.1% during renewals in 1QFY17 (5.1% in 4Q16), which is a good showing despite ongoing headwinds.
- The rise came mainly from the Business & Science Park segment (+4.7% in 1Q17) and Logistics & Distribution Centres (+9.4%) and occupancies continued to inch up marginally to 88.3%.
- Looking ahead, we believe that the rental reversionary outlook is likely to be more muted given the closing gap between market and passing rent levels.
Acquisitions to drive earnings.
- A-REIT acquired assets worth more than S$1bn in Singapore and Australia in FY16 and is searching for more acquisitions within its existing core markets, to compensate for a moderating growth profile.
- The medium-term target is to have overseas assets form c.30% of A-REIT’s revenues (from 11% currently).
- 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$2.61 as we assume full conversion of its Exchanged Collaterised Securities at end FY17 vs the start of the current financial year.
- Maintain BUY on 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/
2016-07-22
DBS Vickers
SGX Stock
Analyst Report
2.61
up
2.55
