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.

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 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.

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.

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.

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