Ascendas REIT - DBS Research 2017-04-26: Heading Towards An Inflection Point

Ascendas REIT - DBS Vickers 2017-04-26: Heading Towards An Inflection Point ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - Heading Towards An Inflection Point

  • Stable 4Q17 results.
  • Operational metrics improving with potential upside from its ability to re-let close to 12% vacant space in its portfolio.
  • Low gearing provides dry powder for acquisitions.

Maintain BUY, TP maintained at S$2.65. 

  • We continue to like Ascendas REIT (A-REIT) for its solid yield of close to 6.2% with upside from potential acquisitions yet-to-be priced in, supported by a conservative leverage level of c.34%. 
  • The ability of the Manager to drive value and growth through various market cycles is a testament of the portfolio’s resilience.

Stable results with improved balance sheets. 

  • A-REIT reported results that were slightly ahead of estimates. 
  • Gross revenues and net property income grew by 2.4% y-o-y and 7.4% in 4Q17, driven mainly by completed acquisitions in Singapore and Australia. This was supported by 
    1. still positive portfolio rental reversions of 3.1% in FY17, and 
    2. improving occupancy rates which bodes well for the REIT in the medium term. 
  • The ability of the REIT to re-let close to 12% of vacant space in its portfolio will provide potential upside to earnings and re-rate the stock.

Conservative capital management provides strong financial flexibility. 

  • The Manager remains on the lookout for acquisitions in Singapore and Australia to complement a fairly flattish rental outlook. A-REIT’s low gearing of c.33.4% in FY17F empowers the REIT to undertake more acquisition opportunities when they come available.


  • Our DCF-based TP is maintained at S$2.65. 
  • Maintain BUY on the back of total potential returns of c.15%. 

Key Risks to Our View: Interest rate risk. 

  • An increase in lending rates will negatively impact dividend distributions. However, A-REIT's strategy has been to actively manage its exposure and it currently has c > 80% of its interest cost hedged into fixed rates.

Derek TAN DBS Vickers | Mervin SONG CFA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2017-04-26
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.650 Same 2.650