Ascendas REIT - CIMB Research 2018-04-23: 4QFY18 Results In Line; Looking To New Markets

Ascendas REIT - CIMB Research 2018-04-23: 4qfy18 Results In Line; Looking To New Markets ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - 4qfy18 Results In Line; Looking To New Markets

  • Ascendas REIT's FY18 DPU of 15.988 Scts (+1.6% y-o-y) was in line with consensus and our expectation at 101% of our forecast. 4Q DPU of 3.91 Scts (+1.5% y-o-y) was at 25%.
  • Operating performance was healthy with portfolio occupancy improving 0.4% pt q-o-q to 91.5%. Excluding a one-off, the REIT recorded +2.4% rental reversion in 4Q.
  • AREIT continues to scale up in Australia. It proposed to acquire a logistics facility in Melbourne for A$34m, or 6.9% yield. It is also looking to enter new markets (Europe, US) in the next 12-18 months.
  • ADD maintained. 
  • Downside risks include still-challenging industry conditions and higher rate hikes.

4QFY18 results summary

  • Ascendas REIT's 4QFY18 DPU grew 1.5% y-o-y, mainly due to the acquisitions of DNV/DSO in Singapore, 52 Fox Drive, Dandenong South (Melbourne) as well as 100 & 108 Wickham (Brisbane). The redeveloped 50 Kallang Ave (fully leased to Schneider Electric) also contributed. These were partially offset by divestments of 10 Woodlands Link, 13 International Business Park and 84 Genting Lane in Singapore. 
  • Portfolio valuation was steady, with cap rate of 6.24% (vs. 6.29% at Mar 2017). Australia had 10bp cap rate compression.

Portfolio occupancy improved 0.4% pt q-o-q to 91.5%

  • Singapore occupancy improved by 0.7% pt q-o-q to 89.5% due to higher occupancy at Techpoint, 20 Tuas Ave 6 and Xilin Districentre Building D. Singapore MTB (multi- tenanted building) improved 0.5% pt q-o-q to 85.9% (on a same-store basis). 
  • Australia occupancy was maintained at 98.5%.

Rental reversion of -6.8% was a one-off

  • Ascendas REIT (AREIT) saw a -6.8% reversion during the quarter due to an -18.8% reversion for a car showroom lease on the ground floor of a high-specs industrial building. Excluding which, reversion would have been +2.4% (FY18: +0.5%). 
  • Australia achieved +1.8% for FY18. For FY19F, 14% of GRI is up for renewal. Of which, 6% is due in Australia; 94% in Singapore. 
  • We note that there are minimal STB (single-tenanted building) expiries for Singapore. 86% of Australian leases up for renewal in FY19F are from Brisbane. There could be negative reversions, but Brisbane accounts for 2-3% of portfolio revenue.

Investment activities

  • Ascendas REIT (AREIT) continues to scale up in Australia. It proposed to acquire a logistics facility at 169- 177 Australis Drive, Derrimut, Melbourne (its fourth property in the vicinity) for A$34m or 6.9% yield. The property is 100% occupied with WALE of three years. 
  • It also continues to divest non-core assets, and has proposed the divestment of No. 30 Old Toh Tuck Road for S$24m. Both are expected to be completed in 1QFY19. 
  • Lastly, it has initiated new AEIs for the Nordic European Centre (S$8.5m) and Aperia (S$13.7m).

Looking to new markets

  • While continuing to scale up in Australia, and Singapore remaining its core market, Ascendas REIT may look to enter new markets (Europe, US) in the next 12-18 months. At this juncture, there is a bias towards Europe as it offers similar risk-reward (as the REIT’s portfolio). Mode of entry could be platform deals and markets where AREIT could scale up. 
  • It could look at business parks and logistics assets in Europe. The US is a deep and broad market and the REIT could look at suburban offices.

Maintain ADD

  • We trim our FY19-20F DPU by 0.6-0.7% as we lower our NPI, which is partially offset by lower financing costs and taxes. Our DDM-based Target Price accordingly inches down (from S$2.88 to S$2.85). 
  • Gearing as at end-FY18 stood at 34.4%; the REIT has debt headroom of c.S$1bn (assuming 40% gearing) for further acquisitions. 
  • We continue to like AREIT for its size and stability. As the largest business parks landlord in Singapore, it is a proxy to a stable and recovering sub-asset class as well as to Singapore’s Industry 4.0.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2018-04-23
SGX Stock Analyst Report ADD Maintain ADD 2.85 Down 2.880