Ascendas REIT - CIMB Research 2017-10-30: 2QFY3/18 Business As Usual

Ascendas REIT - CIMB Research 2017-10-30: 2QFY3/18: Business As Usual ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - 2QFY3/18: Business As Usual

  • Ascendas REIT's 1HFY18 DPU of 8.108 Scts (+2.7% yoy) was broadly in line with consensus and our expectations, at 51% of our FY18F. 2QFY18 DPU of 4.059 Scts was at 26%.
  • 2QFY18’s results yielded no major surprises; though positive rental reversions achieved throughout the Singapore sub-segments was encouraging.
  • We raise our FY19-20F DPU as we factor in the acquisition of No.100 Wickham St plus divestments of 10 Woodlands Link and No. 13 International Business Park.
  • We maintain Hold on AREIT for the lack of near-term catalysts. The REIT is trading slightly above one s.d above its 5-year mean.

2QFY3/18: business as usual 

  • Driven by inorganic contributions, AREIT’s 2QFY18 DPU grew 1.1% yoy to 4.059 Scts.
  • Revenue/NPI grew 5.1%/5.3% yoy due to acquisitions of DNV/DSO in Singapore, 197- 201 Coward St in Sydney and 52 Fox Drive, Dandenong South in Melbourne. This was partially offset by A-REIT City @Jinqiao. 2QFY18’s results yielded no major surprises; the REIT emphasised that business was as usual and we would hear of the appointment of a new CEO in due course.

Portfolio occupancy continues to improve 

  • Portfolio occupancy has continued to improve, up 40bp qoq to 92% in 2Q. Singapore occupancy rose 90b qoq to 90.1% on expansions and new take-ups at LogisTech, 40 Penjuru Lane and 2 Senoko South Rd. Singapore MTB (multi-tenanted buildings) occupancy rose 70bp qoq to 86.8%. 
  • Australia occupancy fell 110bp qoq to 98.7% due to a non-renewal at 1A & 1B Raffles Glade (Sydney). We understand a new 5-year lease was secured for the space and will commence in 3QFY17. Rental reversion was flattish.

Positive reversions achieved throughout the Singapore clusters 

  • The Singapore portfolio achieved a +3.1% reversion for leases renewed in the quarter; all sub-segments achieved positive rental reversion. Business & Science Parks achieved a +3.4% reversion, demonstrating the quality of AREIT’s assets, while integrated development, amenities & retail achieved a +11.3% (mainly due to a renewal in Aperia).
  • About 8.1% of gross revenue is due for renewal in the rest of FY18. Of this, 0.9% is for STB (single-tenanted buildings) and 7.2% for MTB.

Raising FY19-20F DPU by 0.3% 

  • We raise our FY19-20F DPU as we incorporate the acquisition of No.100 Wickham St in Queensland Australia for S$90.3m (initial 7.6% NPI yield; contributes from 2HFY18). This suburban office is fully occupied and its tenants include the State of Queensland (Department of Health) and three data centre operators. The property has a WALE of 4.3 years with annual rental escalation of 3-4% p.a. Also, we factor in the divestments of No.
  • 10 Woodlands Link (Jul 2017) and No.13 International Business Park (Aug 2017).

Capital management remains sound 

  • Gearing as at 30 Sep 17 decreased 80bp qoq to 33.1%. Weighted average all-in cost of borrowing was maintained at 2.9%. AREIT has c.S$1bn debt headroom to reach 40% gearing. That said, we do not think there would be acquisitions in the near-term.

Maintain Hold on lack of near-term catalysts 

  • We maintain Hold on the REIT as there could be a lack of catalysts in the near term.
  • AREIT is trading slightly above one s.d. above its 5-year mean, at a 6% FY19F yield and 1.27x current P/BV. 
  • Our DDM-based target price is raised (from S$2.71 to S$2.72) on the back of an increase in our DPU estimates. 
  • Upside/downside risks could hinge on acquisitions.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-10-30
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 2.72 Up 2.710