Ascendas REIT (AREIT SP) - Maybank Kim Eng 2018-01-26: Another Steady Quarter

Ascendas REIT (AREIT SP) - Maybank Kim Eng 2018-01-26: Another Steady Quarter ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT (AREIT SP) - Another Steady Quarter

Adjusting for recent deals, revised Target Price SGD3.05 

  • Ascendas REIT's 3Q18 DPU at S3.97cts is in line with consensus and our estimate. While portfolio occupancy was softer q-o-q, its Singapore assets achieved +5.8% rental reversions, led by its strongest growth segments (business and science parks, hi-specs industrial and integrated development). 
  • We factored in its two recent transactions (108 Wickham Street and 84 Genting Lane), which lifted our DPU estimates by 1-2%, and our DDM-based Target Price to SGD3.05 (WACC: 7.1%, LTG: 1.5%). 
  • With a new CEO in place, we see a likely pick-up in momentum on its acquisition-led growth. BUY.

Results in line, portfolio saw +3.1% rental reversion 

  • Ascendas REIT saw in-line 3Q18 DPU of S3.97cts as NPI rose 1.7% y-o-y on 4.1% y-o-y revenue growth. 
  • NPI would have increased by 4.7% y-o-y, as 3Q17 had included a one-off property tax refund. The performance was driven by newly-acquired Singapore and Australian properties, and 50 Kallang Ave, recently-redeveloped. 
  • Portfolio occupancy fell q-o-q to 91.1%, with higher vacancies in Singapore at 40 Penjuru Lane, Techpoint and The Alpha. But Singapore saw a +5.8% rental reversion for its business & science parks (+6.6%), hi-specs industrial (+5.8%), and integrated development, amenities & retail (+15.3%). These supported portfolio rental reversion of +3.1%.

Balance-sheet strength supports further deals 

  • Aggregate leverage rose q-o-q from 33.1% to 35.2%, with all-in-borrowing costs stable at 2.9%, hedged borrowing ratio at 70.5% (from 79.3% at end-Sep 2017), and weighted average debt maturity at 2.8 years. 
  • Ascendas REIT has an estimated SGD0.8b debt headroom (at 40% leverage) to support further acquisitions. A SGD31.8m acquisition (No. 1-7 Wayne Goss Drive) in Queensland was announced. It includes land and development, a vendor rental guarantee, and achieves 6.7% initial NPI yield, post-completion in 3Q19.

DPUs raised 1-2%, new CEO named 

  • We fine-tuned estimates to include its SGD109m 108 Wickham Street acquisition (completed on 22 Dec) and 84 Genting Lane divestment (19 Jan), which yielded SGD16.7m. Our DPUs are raised by 1-2%. 
  • Ascendas REIT also announced the appointment of William Tay as its new CEO starting 1 Feb. He joins from the sponsor, where he was deputy CEO of Singapore and SEA, and following a career start at JTC.

Swing Factors


  • Earlier-than-expected pick-up in leasing demand driving improvement in occupancy.
  • Better-than-anticipated rental reversion trend.
  • Accretive acquisitions.


  • Prolonged slowdown in economic activity could reduce demand for industrial space, resulting in lower occupancy and rental rates.
  • Termination of long-term leases contributing to weaker portfolio tenant retention rate.
  • Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.

Chua Su Tye Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-01-26
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 3.05 Up 3.000