Ascendas REIT - DBS Research 2018-01-26: Well-oiled machine continues to churn stable returns

ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - Well-oiled machine continues to churn stable returns

Ascendas REIT's 3Q18 gross revenues and net property income rose by 4.1% and 1.7% to S$217.3m and S$157.6m respectively.
Higher revenues were largely due to acquisition of DNV/DSO in Singapore, 52 Fox Drive in Dandenong South in Melbourne, 100 Wickham Street in Queensland, and 197-201 Coward Street in Sydney. Contribution from these properties more than offset the divestment of two properties in China and two properties in Singapore.
Net property income grew by a slower pace of 1.2% due to higher expenses incurred from an expanded portfolio while higher annual values resulted in higher taxes. DPU declined 0.6% y-o-y to 3.97 Scts due to higher unit base and one-off tax refund the prior year.

Ascendas REIT's portfolio occupancy rates remained higher y-o-y at 91.1% but was a slight dip on quarter. This mainly came from lower occupancy rates in Singapore at 88.8% (vs 90.1% in Sept’17) while Australia remained resilient at 98.5%.
The REIT continues to attract demand from a wide spectrum of industries but we note that a majority of new demand was from firms in the Transport and Storage, Biomedical, and IT sectors.

Ascendas REIT's portfolio rental reversions for the quarter were higher at 3.1% (Singapore at +5.8%, ranging between 6.6% for business parks and 5.8% for Hi-Specs while Logistics facilities saw a 2.3% drop). Australian portfolio saw a 1.0% fall in reversions.
Overall portfolio reversion was stable q-o-q, a positive sign in our view given the expectations that reversions could turn down or flattish.
Portfolio weighted average lease expiry stands at 4.2 years with the REIT in negotiations to renew leases expiring in FY19.

Ascendas REIT's gearing inched higher to 35.2% but remains comfortable owing to debt funded acquisitions. Cost of funds remained stable at 2.9%. The REIT has a weighted average debt maturity of 2.8 years.
Close to 70.5% of the REIT’s debt has been hedged into fixed rates, mitigating the impact of potential interest rate hikes on distributions.

New CEO appointed. Internal candidates highlights the strong bench strength in Ascendas-Singbridge Group. Mr. William Tay has been appointed as the new CEO of A-REIT.
Mr. Tay is currently the Deputy CEO of Singapore & South East Asia and CEO of Korea and has been with the group for more than 10 years.

Derek TAN DBS Vickers | Mervin SONG CFA DBS Vickers | http://www.dbsvickers.com/ 2018-01-26

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