Ascendas REIT - CIMB Research 2017-07-28: 1QFY3/18 Bolstered By Acquisitions

Ascendas REIT - CIMB Research 2017-07-28: 1QFY3/18: Bolstered By Acquisitions ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - 1QFY3/18: Bolstered By Acquisitions

  • AREIT's 1QFY3/18 DPU of 4.049 Scts (+4.3% yoy) was in line with Bloomberg consensus and our expectation, at 25% of our full-year forecast.
  • Acquisitions continued to propel growth, and we are heartened by improvements in its portfolio operating performance.
  • Maintain Hold as business park recovery and further acquisitive growth are priced in.

1QFY3/18 DPU up 4.3% yoy

  • 1QFY18 distribution income/DPU rose 10.9% yoy/4.3% yoy, thanks to contributions from new acquisitions, namely 12, 14 and 16 Science Park Drive in Singapore, 197- 201 Coward St in Sydney, and 52 Fox Drive Dandenong South (formerly known as Stage 4 Power Park Estate) which was acquired on 3 Apr 2017 for S$26.5m.
  • We note that 1QFY18 distribution income also included a one-off S$5.9m rollover adjustment from prior years.
  • The yoy improvement was also partly helped by a low-base effect as the prior year was affected by the conversion of exchangeable collateralised securities.
  • Separately, AREIT announced the appointment of Mr Paul Toussaint as its Australian CEO, with effect from 3 Oct 2017. He is currently Chief Investment Officer of Commercial & Industrial Property Pty Ltd.

Portfolio operating performance improved

  • Portfolio occupancy increased 1.4% pts qoq to 91.6%. Singapore portfolio occupancy improved 60bp qoq to 89.2%, mainly due to new take-ups at 50 Kallang Ave, 40 Penjuru Lane and Pioneer Hub. Australia portfolio occupancy rose 350bp qoq to 99.8% as both 62 Stradbroke St and 494 Great East Highway achieved full occupancy during the quarter.
  • Positive rent reversion of 1.7% was achieved for renewed leases in multi-tenanted buildings (MTBs) in 1QFY18 (Singapore: +1.1%, Australia: +3.5%). 
  • Notably, AREIT’s Singapore business parks achieved +3.7% reversion during the quarter. The manager continues to guide for flattish rental reversion for FY18F.
  • 11.8% of gross revenue is due for renewal for the remainder of FY18. Of which, 1% are from single-tenanted buildings (STBs) and 10.8% are from MTBs.

Investment management

  • In Singapore, 50 Kallang Avenue, which was redeveloped for S$45.2m, was been handed over and fully leased to a MNC. 
  • During the quarter, the manager embarked on an S$4.5m asset enhancement initiative (AEI) at 21 Changi South Ave 2. On 12 Jul 2017, 10 Woodlands Link was divested for S$19.3m, with divestment gain of S$7.3m. Two other AEIs and one re-development project are still ongoing.
  • Looking ahead, we believe AREIT could look to further extend its Singapore and Australia business park footprints, with development projects an alternative option. 
  • Assuming a 40% cap on gearing, AREIT has available debt headroom of c.S$1bn.

Capital management

  • Aggregate leverage remained stable at 33.9%, and weighted average all-in cost of borrowings at 2.9% at end-1QFY18. About 72% of AREIT’s borrowings are on fixed rates with an average term of 3.2 years. 
  • Weighted average tenure of debt outstanding is 3.1 years and S$593m of revolving credit facilities is due in 2017.

Maintain Hold

  • AREIT is trading at 5.8% FY18F yield (vs. 5-year average of 6.4%) and 1.31x current P/BV (vs. 5-year average of 1.15x). 
  • We keep our DDM-based Target Price S$2.71 and Hold call as we deem its business park recovery and further acquisitive growth as priced-in.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-07-28
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 2.71 Same 2.71