Ascendas REIT - Maybank Kim Eng 2016-07-22: Built for the future

Ascendas REIT - Maybank Kim Eng 2016-07-22: Built for the future Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI 

Ascendas REIT (AREIT SP) - Built for the future

1Q results in-line. Maintain BUY with TP raised.

  • Results were in-line. Operating trends were stable and we continue to expect growth onwards from next year due to business parks and high- spec vacancies being filled. 
  • Maintain BUY, with TP raised 5% to SGD2.70 on yield compression, as well as slight increase in our FY17-19 earnings estimates.

Results highlights: NPI margin expanded

  • Rev/NPI/DPU increased 15%/20%/4% YoY. Growth came on the back of the acquisitions last year: the Australian logistics portfolio and business park ONE@Changi City. 
  • Positive rent reversions of 4.1% also contributed, but this number has tapered from an average of 7% in FY16 vs. 8.3%/14.8% in FY15/14. 
  • Management expects reversions to remain flat to the low single digits for the year. 
  • Occupancy rate was stable at 88.2% (+60bp QoQ, -60bp YoY). 
  • We slightly raise our DPU estimates by 1.7%/1.6%/1.7% for FY17-19 mainly due to NPI margin improvement, which was noticeable across all property segments (up 1.8ppts QoQ to 72%). This was due to lower utility costs.

Business parks and high-spec to drive growth

  • AREIT is our top SREIT pick, as it has the best supply/demand dynamic among the SREITs. We like it for the following reasons: 
    1. Business park and high-spec space, where AREIT has c.62% exposure, will go into short supply from 2017 onward; 
    2. as pointed out in SG Strategy: The Singapore FIX, government support for R&D, biomed, infocomm, advanced manufacturing, technology, and start-ups under the SGD19b Research Innovation & Enterprise programme, will drive demand for business parks & high-spec. 
  • As AREIT has c.12% vacancy in this space, capacity upside in 2017 and 2018 drives our DPU growth.

Yield compression

  • In SREIT Strategy: To flow or not to flow, we highlighted that REITs globally are a cheap asset class relative to bonds, and SREIT yields are the most attractive among developed markets. 
  • In an environment of heightened risks to growth, global bond yields have further compressed, supporting the case for further SREIT yield compression. 
  • We tighten AREIT’s yield target to 6.1%, 20bp below the -1SD of 6.3% previously. 
  • Maintain BUY.

Joshua Tan Maybank Kim Eng | Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-07-22
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 2.70 Up 2.57