Ascendas REIT - Phillip Securities 2017-12-18: The Stable Giant

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ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - The Stable Giant

• Track record of DPU growth through strategy of portfolio rebalancing and stability through diversification.
• Portfolio is positioned to capture opportunities as Singapore evolves towards higher value-added manufacturing.
• ACCUMULATE with DDM-derived target price of S$2.86.

BACKGROUND 

• Ascendas Real Estate Investment Trust (A-REIT) is the largest REIT in the S-REIT universe by market capitalisation, and it was the first Industrial REIT to be listed. 
• The REIT's Sponsor, Ascendas-Singbridge Group, is 51:49 jointly-owned by Temasek Holdings and JTC Corporation. 
• The asset values of the Singapore and Australia portfolios stood at S$8.6 bn and S$1.4 bn respectively, as at 30 September 2017.

INVESTMENT MERITS / OUTLOOK

1. Largest industrial REIT with an improving outlook for Industrial rents. 

• The current oversupply of industrial space is a concern, but supply is tapering in 2018. Taking the tapering supply in context with the uptick in Industrial activity leads us to believe that rents to bottom by the end of 2018.

2. Exposure to Business & Science Park properties and Hi-Tech/Hi-Specification buildings. 

• Ascendas REIT (A-REIT) boasts a portfolio that has "low exposure to manufacturing". The manager's strategy has been to reposition the portfolio to cater to higher-value manufacturing activities and non-manufacturing activities. 
• 55% of A-REIT's net property income is derived from Business & Science Park and Hi-Specs properties in Singapore. 
• Its Sponsor's pipeline of over S$1 bn of Business & Science Park properties offers growth opportunities.

3. Relatively low gearing affords debt headroom for inorganic growth. 

• Ascendas REIT (A-REIT)'s 2.9% cost of debt is lower than the median of 3.3% among peers. Aggregate leverage of 33.1% affords ample debt headroom to acquire and grow inorganically.

RECOMMENDATION 

• Maintain ACCUMULATE with DDM-derived target price of S$2.86. 
• A-REIT has a track-record of growing DPU through rebalancing, and stability through its highly diversified portfolio. 
• We expect yield of ~5.8% to be reliable.

Ascendas REIT is one of the Phillip Securities Research's 2018 The Phillip Absolute 10 Picks.

Richard Leow CFA Phillip Securities | http://www.poems.com.sg/ 2017-12-18

Phillip Securities SGX Stock Analyst Report ACCUMULATE Maintain ACCUMULATE 2.860 Same 2.860