Ascendas REIT - DBS Research 2017-07-24: Powering Ahead

ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - Powering Ahead

We continue to like Ascendas REIT (A-REIT) for its solid yield of close to c.6.0%, coupled with ample opportunities to drive earnings higher 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.
We raised our TP to S$2.78 on the back of lower WACC assumptions given brighter operational prospects in 2018.

Conservative estimates but see upside bias if acquisitions are executed upon.
Going into 2018, given the REIT’s leading operational scale in Singapore and its focus on the Business Park space (37% of earnings), we believe that AREIT is in a strong position to deliver stable returns. In fact, we see ample opportunities that the Manager can deliver earnings surprise on the back of
1. ability of the REIT to re-let close to 12% of vacant space in its portfolio, and
2. acquisitions which we have not priced in.

The Manager remains on the lookout for acquisitions in Singapore and Australia to complement a fairly flattish rental outlook.
While A-REIT’s low gearing of c.35% offers ample headroom, the strong share price performance (implied yield of c.5.9%) means that new equity could also be issued to fund any meaningful acquisition opportunities.

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 | Singapore Research Team DBS Vickers | Mervin SONG CFA DBS Vickers | http://www.dbsvickers.com/ 2017-07-24

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.78 Up 2.650