Ascendas REIT - OCBC Investment 2017-10-31: Slight DPU Growth

Ascendas REIT - OCBC Investment 2017-10-31: Slight DPU Growth ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - Slight DPU Growth

  • 2QFY18 DPU +1.1% YoY.
  • Portfolio rental reversion of 3.1%.
  • Occupancy inches up.

2QFY18 results within our expectations 

  • Ascendas REIT (A-REIT) reported its 2QFY18 results which met our expectations. 
  • Gross revenue and NPI rose 5.1% and 5.3% YoY to S$215.8m and S$160.5m, respectively. This was driven mainly by acquisitions in Singapore and Australia (Melbourne and Sydney), but partially offset by the divestment of A-REIT City@Jinqiao in China. 
  • DPU grew by a smaller magnitude of 1.1% YoY to 4.059 S cents due to a larger unit base (+3.9%). 
  • For A-REIT’s 1HFY18 performance, gross revenue increased 3.9% to S$429.1m and this made up 48.7% of our FY18 forecast. DPU of 8.108 S cents represented growth of 2.7% and constituted 51.0% of our full-year projection. If we exclude a one-off boost of S$5.9m (~0.20 S cents/unit) from 1QFY18, adjusted DPU would be flat YoY (+0.1%).

Rental reversions were positive across all segments 

  • Operationally, A-REIT achieved positive rental reversions of 3.1% for its Singapore portfolio. A positive sign was seen in higher rental uplifts across all segments, including Hi-Specs Industrial (+0.2%) and Logistics & Distribution Centres (+1.0%), both of which had recorded two consecutive quarters of negative rental reversions prior to 2QFY18. There were no renewals in Australia during the quarter. 
  • AREIT’s overall portfolio occupancy was up marginally by 0.4 ppt QoQ to 92.0%, as the slight decline in Australia (-1.1 ppt to 98.7%) was offset by the improvement in Singapore (+0.9 ppt to 90.1%). The non-renewal of a lease at one of its logistics properties in Sydney has since found a replacement commitment for five years. 
  • Separately, A-REIT also clarified during the analyst briefing that despite the resignation of its former CEO Mr. Chia Nam Toon on 20 Oct for personal reasons, it remains business as usual and it does not expect any disruption in operations. The search for a successor is still ongoing.

Reiterate HOLD 

  • We factor in A-REIT’s recent property transactions (acquisition of No. 100 Wickham Street, Fortitude Valley in Brisbane and divestments of No. 13 IBP and 10 Woodlands Link), and our FY18 and FY19 DPU forecasts are raised by 0.1% and 0.5%, respectively.
  • Correspondingly, our fair value estimate inches up from S$2.66 to S$2.67. Maintain HOLD.

Andy Wong Teck Ching CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-10-31
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 2.67 Up 2.660