Ascendas REIT - OCBC Investment 2017-01-25: Positive takeaways from 3QFY17 results

ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - Positive takeaways from 3QFY17 results

Ascendas REIT (A-REIT) reported its 3QFY17 results which met our expectations.
Gross revenue increased 7.6% YoY to S$208.6m. This was driven by inorganic growth, but partially offset by loss of income from the divestment of three assets.
DPU grew at a slower pace of 1.2% YoY to 3.993 S cents, as the higher revenue and absence of performance fees (3QFY16: S$8.4m) was diluted by an enlarged unit base arising largely from the issuance of 33.0m new units from the conversion of its Exchangeable Collateralised Securities (ECS).
As at 31 Dec 2016, S$237.75m of the S$300m ECS (maturity date of 1 Feb 2017) have been converted into units. Subsequently, since the beginning of this year, the remaining S$62.25m of ECS have been converted into units.
On a 9MFY17 basis, AREIT’s gross revenue jumped 11.6% to S$621.7m and formed 73.7% of our full-year forecast.
DPU of 11.891 S cents represented a decline of 0.5% and made up 76.4% of our FY17 projection. The slight decline can be attributed to a one-off distribution of taxable income from operations in 2QFY16 amounting to S$6.5m (~0.271 cents/unit). Excluding this, A-REIT’s recurrent DPU for 9MFY17 would have increased 1.8%.

During the quarter, A-REIT achieved positive rental reversions of 3.0% for its Singapore portfolio. This was underpinned by its Business & Science Parks (+6.1%), Hi-Specs Industrial (+3.5%), Light Industrial (+1.8%) and Logistics & Distribution Centres (+1.1%) segments.
Overall portfolio occupancy improved to 90.2% (+1.1 ppt QoQ), as Singapore saw new take ups at 40 Penjuru Lane and Pioneer Hub, while Australia registered a robust improvement due to higher demand at 62 Stradbroke Street (Brisbane).

In terms of financial position, A-REIT recorded a healthy reduction in its aggregate leverage from 34.2% (as at 30 Sep 2016) to 31.8%, although we expect this to increase once A-REIT completes the acquisition of 12, 14 and 16 Science Park Drive from its sponsor.
We maintain BUY on A-REIT, but trim our fair value estimate from S$2.72 to S$2.68 as we factor in a higher risk-free rate of 2.7% (previously 2.4%).

Andy Wong Teck Ching CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-01-25

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 2.68 Down 2.720