Ascendas REIT - OCBC Investment 2018-04-24: Journey To The West?

Ascendas REIT - OCBC Investment 2018-04-24: Journey To The West? ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - Journey To The West?

  • Ascendas REIT (A-REIT)'s 4QFY18 DPU +1.5% y-o-y.
  • FY18 portfolio rental reversion of 0.7%.
  • Studying new markets.

4QFY18 results within our expectations

  • Ascendas REIT (A-REIT) reported its 4QFY18 which met our expectations. Gross revenue rose 3.3% y-o-y to S$215.7m while DPU grew 1.5% to 3.91 S cents. 
  • For the full-year, A-REIT’s gross revenue increased 3.8% to S$862.1m and formed 97.5% of our FY18 forecast. DPU of 15.99 S cents represented growth of 1.6% and constituted 100.4% of our projection.
  • FY18 DPU was boosted by a one-off distribution amounting to S$5.9m (0.20 S cents per unit). Excluding this, DPU would have grown 0.3% instead.

Guiding for slight improvement in rental reversions

  • A-REIT registered negative rental reversions of 6.8% in Singapore for 4QFY18, due largely to the High-Specifications Industrial segment (-18.8%). This was attributed primarily to a single lease for a showroom. Excluding this, rental reversion for this segment would be 1.3%. 
  • Overall portfolio rental reversion was 0.7% for FY18 (Singapore: 0.5%; Australia: 1.8%). 
  • Looking ahead, A-REIT has guided for slight improvement in rental reversions for FY19. In terms of valuation, its portfolio cap rates were largely stable, with a mild compression of 5 bps to 6.24%.

Europe and U.S. potential new markets for inorganic growth

  • New CEO Mr. William Tay shared his vision of ‘value management’, ‘value creation’ and ‘value adding’ during the analyst briefing. This entails improving A-REIT’s franchise value, identifying assets for redevelopment and incorporating smart technologies to make its assets future-ready and actively looking at new markets. 
  • Europe and the U.S. are the most probable destinations for inorganic growth beyond Singapore and Australia, with suburban offices and business parks the likely asset classes for acquisitions. 
  • Given the importance of scalability, we believe management would aim to acquire a platform in these new markets, similar to its approach when it penetrated the Australian market previously. 
  • We incorporate A-REIT’s full-year results in our model, and fine-tune our finance costs and tax assumptions, while also factoring in its proposed divestment of its 30 Old Toh Tuck Road property and acquisition of a logistics property in Melbourne (6.5% post-cost NPI yield). Our fair value estimate increases slightly from S$2.69 to S$2.71.

Andy Wong Teck Ching CFA OCBC Investment | http://www.iocbc.com/ 2018-04-24
SGX Stock Analyst Report HOLD Maintain HOLD 2.71 Up 2.690