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

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. 
  • Maintain BUY, with a Target Price of SGD2.95 (from SGD2.90, 9% upside).

New CEO at the helm.

  • 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.

Rental reversions to remain positive.

  • 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%.

Singapore’s industrial outlook turning favourable.

  • 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.

Active capital recycling expected to continue.

  • 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.

BUY, with a DDM-based Target Price of SGD2.95 (CoE: 7.2%, TG: 1.5%)

  • 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
SGX Stock Analyst Report BUY Maintain BUY 2.95 Up 2.900