Ascendas REIT - RHB Invest 2018-01-26: In A Good Position To Ride On The Industrial Rebound

ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - In A Good Position To Ride On The Industrial Rebound

Ascendas REIT delivered another stable set of quarterly results, aided by contributions from recent acquisitions.
With demand-supply dynamics turning favourable across most of Singapore’s industrial sub-segment, the REIT is well-positioned to ride on the upturn through its diverse portfolio of 101 properties across the island. Management continues to effectively execute its capital recycling strategy, with Australia being the key near-term acquisition target market.
A-REIT is our Top Pick among the large-cap REIT stocks. Maintain BUY, with a Target Price of SGD 2.90 (6% upside).

Ascendas REIT’s results are in line with our estimate, with 3QFY18 (Mar) and 9MFY18 DPU accounting for 25% and 75% of our full-year DPU forecasts respectively. Gross revenue rose 4.1%YoY, aided by contributions from recent acquisitions while NPI rose by a lower 1.7% y-o-y, mainly due to a one-off property tax refund last year.
Excluding the one-off items, NPI would have been higher by 4.7% y-o-y. The decline in its DPU was mainly due to its enlarged share base that arose from the conversion of exchangeable collateralised securities (ECS).

Jurong Town Corporation (JTC), in its 4Q17 report released yesterday, noted that overall industrial property occupancy improved 0.3ppt q-o-q during the quarter, driven by the increased take-up of warehouse space.
While rental rates dipped by a marginal 0.1% q-o-q, JTC noted that occupancy and rentals are expected to stabilise, with supply tapering in coming years. About 1.6m sqm of industrial space is expected to come on-stream in 2018 – in comparison to the average supply of 1.8m sqm over the last three years.
We expect the business park segment and hi-tech industrial space to be the early movers in the cycle, followed by the logistics segment, which is expected to rebound by the end of the year.

Ascendas REIT continues to impress, with positive rent reversions of 3.1% (2QFY18: 3.1%) in 3QFY18, despite a challenging market.
All Singapore market segments reported positive reversions, except for logistics and distribution centres (-2.3%). Industrial demand was mainly driven by the transport and storage, and IT sectors.
For FY18-19, we expect the REIT to post positive rental reversions of 2-5%. Its overall portfolio occupancy, however, fell slightly by 0.9ppt q-o-q to 91.1%.

The suburban office, 108 Wickham Street, located in Queensland, Australia was acquired at an initial NPI yield of 6.5%, ie higher than portfolio yield of ~6.2%.
We expect Ascendas REIT to continue targeting the Australian market for acquisitions in the near term. This is as the assets are mainly freehold with slightly superior yields, provide stability with their triple net lease structure, and comes with in-built annual rental escalations.
The REIT also completed the divestment of 84 Genting Lane in Singapore at a 6% premium to its latest book value.

Mr William Tay Wee Leong will be appointed as executive director and CEO, with effect from 1 Feb 2018.
We view the move favourably, as Mr Tay has more than 22 years of wide-ranging experience in real estate, straddling both the public and private sectors in Singapore and overseas. Mr Tay started his career with JTC, where he spent 12 years. He is currently the Deputy CEO for the Singapore and South-East Asia divisions, and CEO, South Korea of Ascendas-Singbridge Group.

We keep our earnings estimates, while our DDM-derived Target Price is based on a COE of 7.1% and terminal growth rate of 1.5%.
Ascendas REIT is our Top Pick for the industrial sector. The stock currently offers FY18F/FY19F yields of 5.8%/5.9% respectively.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2018-01-26

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 2.900 Same 2.900