Ascendas REIT - UOB Kay Hian 2017-07-28: 1QFY18 Results Of AREIT In Line

Ascendas REIT - UOB Kay Hian 2017-07-28: 1QFY18 Results Of AREIT (In Line); 3Q17 Results Of FHT (In Line) ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - 1QFY18 Results Of AREIT (In Line); 3Q17 Results Of FHT (In Line)

  • Results of AREIT is in line with our expectations. 
  • AREIT expects a stable performance in FY18 with tenants looking at improving operational efficiency amid some pressure on rental rates and occupancy.
    Maintain BUY and target price of S$2.97.


Results in line with expectations. 

  • Maintain BUY and target price of S$2.97, based on a two-stage dividend discount model (required rate of return: 6.4%, terminal growth rate: 1.8%). 
  • 1QFY18 gross revenue grew 2.7% yoy, underpinned by acquisitions of 197-201 Coward Street in Sydney; 52 Fox Drive, Dandenong South in Melbourne; and 12, 14; and 16 Science Park Drive (DNV/DSO) in Singapore. This was partly offset by the divestments of Ascendas Z-Link and A-REIT City @ Jinqiao, and by the decommissioning of 50 Kallang Avenue for AEI. Consequently, NPI increased 2.6% yoy.
  • Distributable income increased 10.9% due to a rollover adjustment of S$5.9m from an IRAS ruling on deductions from FY11/12. 
  • Results came in within our expectations, with 1QFY18 DPU representing 24.8% of our full-year forecast.

Positive rental reversion of 1.7% portfolio-wide in 1QFY18. 

  • This was underpinned by Business & Science Parks (+3.7%) and Integrated Developments (+13.3%), partially offset by Light Industrial (-4.0%) and Logistics & Distribution Centres (-2.0%). Australia’s Logistics & Distributions (+3.5%) also supported reversions. 
  • The Business and Science Parks segment account for 42% and 28% of expiring leases for FY18 and FY19 respectively.

Portfolio-wide improvements in occupancy in 1QFY18. 

  • Occupancy in Singapore improved 0.9ppt yoy to 89.2%. Australia’s rose 8.9ppt yoy to 99.8%. Overall portfolio occupancy gained 3.4ppt yoy and 1.4ppt qoq.
  • Even lease expiry profile, with 11.8% of assets by gross revenue due for renewal in FY18 and 15.9% due in FY19. Within the Singapore portfolio, single-user assets account for only 1.1% and 0.6% of expiries in FY18 and FY19 respectively Divestment of 10 Woodlands Link. 
  • Ascendas REIT announced the divestment of 10 Woodlands Link in late-May 17 which was completed in mid-July. Ascendas REIT divested the property for S$19.28m, which is 60.7% higher than the original 2005 purchase price of S$12m and above the Mar 17 valuation of S$16.5m. The property was vacant since Dec 16 following the lease expiry of the sole tenant. Net proceeds from the sale are expected at S$18.9m and will be used to fund investments, repay debt and for corporate and capital needs.

Inflexion point for business park rents? 

  • According to CBRE, although island-wide vacancy for business parks rose slightly from 1Q17 by 0.3ppt to 11.9%, business-park rents across the island remained unchanged at S$5.50psf pm and S$3.70psf pm respectively. 
  • Supply-side is supportive of fundamentals due to the relatively small business park projects in the pipeline, most of which are pre-committed. Demand for business parks, however, has dampened, partly due to tenants recentralising to the CBD with the correction in office rents.

Lacklustre factory performance. 

  • Upper-floor factory rents fell 1.5% qoq and 5.1% yoy, according to CBRE. Given the new supply in the pipeline, rents are likely to face downward pressure unless absorption improves.

New Australia CEO. 

  • Ascendas REIT appointed Mr Paul Toussaint as CEO of Ascendas Funds Management (Australia) effective Oct 17. Mr Toussaint will report to the CEO of the Manager of Ascendas REIT and will be responsible for the overall performance of AREIT’s Australian portfolio.


  • Management expects a stable performance in FY18 with tenants looking at improving operational efficiency and remaining cautious on the prospect of expansion.
  • Management also expects some pressure on rental rates and occupancy due to the incoming supply of 1.4m sqm of industrial space in 2H17.

Vikrant Pandey UOB Kay Hian | http://research.uobkayhian.com/ 2017-07-28
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.970 Same 2.970