Ascendas REIT - OCBC Investment 2016-07-22: Decent Start

Ascendas REIT - OCBC Investment 2016-07-22: Decent Start Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI 


  • 1QFY17 DPU grew 4.0% YoY.
  • Positive rental reversions of 4.1% in Singapore.
  • BUY with higher S$2.66 FV.

1QFY17 results in-line with our expectations

  • Ascendas REIT (A-REIT) reported its 1QFY17 results which met our expectations. 
  • Gross revenue jumped 15.0% YoY to S$207.6m and accounted for 24.7% of our full-year forecast. This was driven by contributions from the acquisition of the Australian Portfolio and ONE@Changi City
  • NPI grew at a larger magnitude of 20.3% to S$149.5 due to lower utilities expenses which was a result of lower rates secured for certain properties. 
  • DPU for the quarter came in at 3.996 S cents, an improvement of 4.0% YoY. This formed 25.3% of our FY17 Projection.

Still delivering positive rental reversions

  • Although the operating environment remains challenging, management still achieved positive rental reversions of 4.1% for its Singapore properties for leases renewed in 1QFY17, although this was a moderation from the previous quarter. 
  • The main driver came from its Logistics & Distribution Centres (+9.4%) and Business & Science Parks (+4.7%). Renewal rates came in slightly higher by 0.5% for its Australia Logistics & Distribution Centres. 
  • Looking ahead, A-REIT reiterated its guidance that it expects rental reversions for FY17 to come in flat to the low-single digit level, as current market rental is slightly above the weighted average passing rental for most of its multi-tenant space which is due for renewal. 
  • Overall portfolio occupancy stood at 88.2% (+0.6 ppt QoQ), as at 30 Jun 2016, with improvements seen in Singapore and China. The latter was largely underpinned by the divestment of an asset which was unoccupied in the previous quarter. 
  • Occupancy for its Australia portfolio declined from 94.7% (as at end FY16) to 90.9%.

Maintain BUY

  • In terms of financial position, A-REIT’s aggregate leverage of 37.0% was slightly lower by 0.3 ppt on a QoQ basis, with 75.9% of its borrowings hedged for an average term of 3.8 years. 
  • We ease our FY17 and FY18 DPU forecasts marginally by 0.4% and 0.3%, respectively, as we factor in A-REIT’s divestment of Jiashan Logistics Centre in our model. 
  • However, as we also lower our cost of equity assumption from 7.8% to 7.5%, our fair value estimate increases from S$2.56 to S$2.66. 
  • Maintain BUY.

Wong Teck Ching Andy CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-07-22
OCBC Securities SGX Stock Analyst Report BUY MAINTAIN BUY 2.66 Up 2.56