Ascendas REIT - OCBC Investment 2017-04-26: Largely Healthy Performance

Ascendas REIT - OCBC Investment 2017-04-26: Largely healthy performance ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - Largely healthy performance

  • 4QFY17 DPU jumped 13.0% YoY.
  • Positive FY17 rental reversions of 3.1%.
  • Aggregate leverage of 33.8%.

4QFY17 results in-line with our expectations 

  • Ascendas REIT (A-REIT) reported its 4QFY17 results which met our expectations. 
  • Gross revenue increased 2.4% YoY to S$208.9m, while NPI rose 7.4% to S$154.1m. This was largely driven by inorganic growth, while A-REIT also incurred less utilities expenses due to lower rates contracted for certain properties and lower property tax expenses arising from retrospective downward revisions in the annual value of some properties. 
  • DPU jumped 13.0% YoY to 3.85 S cents, attributable to its higher NPI and significantly lower performance fees (S$1.9m in 4QFY17 versus S$9.0m in 4QFY16) despite an enlarged unit base. 
  • On a full-year basis, A-REIT’s gross revenue increased 9.1% to S$830.6m and this formed 98.5% of our FY17 forecast. 
  • DPU of 15.743 S cents represented growth of 2.5% and constituted 100.0% of our projection.

Rental reversions likely to moderate ahead 

  • Operationally, A-REIT achieved positive rental reversions of 3.2% and 3.1% in 4QFY17 and FY17, respectively. However, its Logistics & Distribution Centres segment in Singapore experienced negative rental reversions of 18.8% in 4QFY17, which management attributed to competitive pressures in the market due to an oversupply situation. 
  • Looking ahead, A-REIT expects rental reversion to be subdued or flat in light of global macroeconomic uncertainties. Approximately 16.6% of its gross revenue is due for renewal in FY18. 
  • Portfolio occupancy was unchanged QoQ at 90.2%, as improved occupancy at Singapore was offset by a higher vacancy rate in Australia. The latter was due to the termination of a lease in Sydney, but management is close to signing a replacement tenant for eight years.

Maintain BUY 

  • Following the completion of the acquisition of 12, 14 and 16 Science Park Drive from its sponsor, A-REIT’s aggregate leverage increased from 31.8% (as at 31 Dec 2016) to 33.8%, which is still a healthy level, in our view. 
  • Based on our estimates, A-REIT has ample debt headroom of ~S$1b before reaching an aggregate leverage of 40%. 
  • We incorporate this latest set of results in our model, fine-tune our assumptions and roll forward our valuations, thus deriving a revised value estimate of S$2.66 (previously S$2.68).
  • Maintain BUY.

Andy Wong Teck Ching CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-04-26
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 2.660 Down 2.680