Ascendas REIT - OCBC Investment 2017-07-28: One-Off DPU Boost

Ascendas REIT - OCBC Investment 2017-07-28: One-Off DPU BOOST ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - One-Off DPU BOOST

  • 1QFY18 DPU +4.3% YoY; one-off boost.
  • Portfolio rental reversion of 1.7%.
  • HOLD on fair valuations.

1QFY18 results within our expectations 

  • Ascendas REIT (A-REIT) reported its 1QFY18 results which met our expectations. Gross revenue rose 2.7% YoY to S$213.3m, while NPI increased 2.6% to S$153.4m. This was driven by acquisitions in Singapore and Australia, but partially offset by the divestment of two properties in China, coupled with the decommissioning of 50 Kallang Avenue for asset enhancement works. 
  • DPU of 4.049 S cents represented a growth of 4.3% YoY, and formed 25.5% of our FY18 forecast. However, we note that this was boosted by a one-off S$5.9m (~0.20 S cents/unit) distribution of rollover adjustments related to a ruling by IRAS on the non-tax deductibility of certain upfront fees incurred in FY11/12 for certain credit facilities. If we exclude this, A-REIT’s 1QFY18 adjusted DPU would have declined 0.8% YoY, or 24.2% of our full-year forecast.

Mixed bag for rental reversions albeit being positive overall 

  • Operationally, A-REIT achieved positive rental reversions of 1.1% in Singapore and 3.5% in Australia. However, if we delve deeper into the different sub-segments in Singapore, A-REIT’s Hi-Specs Industrial, Light Industrial and Logistics & Distribution Centres registered negative rental reversions of 0.7%, 4.0% and 2%, respectively. This was offset by strong rental uplifts from Business & Science Parks (+3.7%) and Integrated Development, Amenities & Retail (+13.3%). 
  • Management maintained its cautious guidance for rental reversions to remain subdued or flat in light of the lower anticipated demand and large supply of industrial properties in Singapore. 
  • Approximately 11.8% of A-REIT’s gross revenue is due for renewal for the remaining three quarters of FY18, which are all in Singapore. Portfolio occupancy inched up 1.4 ppt QoQ to 91.6% as both Australia and Singapore saw lower vacancies.

Maintain HOLD 

  • In terms of financial position, A-REIT’s balance sheet remains strong, with a healthy aggregate leverage ratio of 33.9%, as at 30 Jun 2017. 
  • We expect it to utilise its ample debt headroom to drive its inorganic growth ahead. However, we are maintaining our forecasts, HOLD rating and S$2.66 fair value on the stock. 
  • Based on our projections, A-REIT is trading at FY18F distribution yield of 5.8% and P/B ratio of 1.3x.

Andy Wong Teck Ching CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-07-28
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 2.660 Same 2.660