Ascendas REIT - RHB Invest 2018-04-24: On Solid Footing

ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - On Solid Footing

Ascendas REIT delivered yet another healthy quarter, aided by acquisition contributions and organic growth. Portfolio metrics remained positive, with occupancy rate improvements and positive FY18 rental reversions.
The REIT remains a prime beneficiary of the expected turnaround in Singapore’s industrial sector. Management has also been fairly active in adding value via capital recycling strategies and asset enhancements.
Moving ahead, the REIT is also looking to tap into the US and Europe markets for potential acquisitions. It remains our industrial sector Top Pick.

Mr William Tay Wee Leong shared his vision of growing the REIT using a 3-pronged strategy of
- value management (pro-active leasing and customer engagement),
- value creation (tapping into redevelopment potential and incorporating new technologies to increase efficiency) and
- value-adding (acquisitions and divestments).
He added that he is also looking into new regions (the US and Europe) for potential acquisitions along with sponsor, but reiterated that Singapore is to remain its core market.
Key considerations before its potential entry into new markets would be the sizeable and scalable nature of assets that are available for acquisitions.

While 4QFY18 (Mar) rental reversion was at -6.8%, this was mainly dragged by the renewal of a single lease (high- tech space), which was used as a showroom. Without this, its rental reversion would have been +2.4%.
Looking ahead, we expect its portfolio to post a rental reversion of 2-5% for FY19, aided by a positive market outlook.
Industrial demand continues to see improvements, with Singapore’s portfolio occupancy at 89.5% (+0.7ppts q-o-q). Its Australian assets’ occupancy rate remains high, at 98.5%.

Based on Jurong Town Corp’s (JTC) latest industrial market data, about 1.6m sqm of industrial space is expected to come on-stream in 2018 vs the average supply of 1.8m sqm over the last three years – with further supply tapering down from 2019 onwards.
Demand-supply dynamics remain the most favourable for the business park segment, followed by the high-tech industrial space. While the logistics segment is still grappling from a high influx in supply, we expect the segment to stabilise in 2H18 and see some pick-up by early 2019.

The Australia market is expected to remain the near-term focus for acquisitions, with a possibility of sponsor asset injections in Singapore.
In FY18, the REIT deepened its Australian presence with a total SGD 225.8m worth of acquisitions. Australia now accounts for about 15% of its total portfolio. It also divested three of its assets at a premium to its book value for a total consideration of SGD60.8m.

We fine-tune our FY19-21F DPUs by 1-3% to reflect higher future occupancy and rental rates.
Ascendas REIT is our preferred industrial pick and offers the best exposure to the favourable business park segment in Singapore. It currently offers reasonably attractive FY19-20F yields of 6.1% and 6.3% respectively.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2018-04-23

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