Ascendas REIT - UOB Kay Hian 2018-04-24: 4QFY18 Results Of AREIT In-line

Ascendas REIT - UOB Kay Hian 2018-04-24: 4QFY18 Results Of AREIT In-line ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - 4QFY18 Results Of AREIT In-line

  • Ascendas REIT improved portfolio occupancy to 91.5% and rental reversion to 0.7% in FY18.
  • Management has been looking at acquisition opportunities in Europe and the US.
  • Maintain BUY with a target price of S$3.05.
  • Maintain OVERWEIGHT on the sector.


Results in line with expectations; maintain BUY with an unchanged target price of S$2.71, based on DDM (required rate of return: 6.4%, terminal growth: 2.0%). 

  • Ascendas REIT's 4QFY18 gross revenue grew 3.3% y-o-y, mainly due to the acquisitions of DNV/DSO in Singapore, 52 Fox Drive, Dandenong South in Melbourne, Australia, 100 Wickham Street and 108 Wickham Street in Brisbane, Australia, and completion of redevelopment works at 50 Kallang Avenue in Singapore since Jun 17, but this was partially offset by the divestment of 10 Woodlands Link, 13 International Business Park and 84 Genting Lane. 
  • Net property income (NPI) grew slower by only 2.5%, as property opex increased 5.5% (due to the absence of a property tax refund, arising from retrospective downward revisions in the annual value of certain properties in 4QFY17). 
  • While distributable income was up 2.4% y-o-y, 4QFY18 DPU of 3.910 S cents grew slower by only 1.5% due to the larger number of units in issue. The results were in line with expectations, with FY18 DPU coming in at 97.7% of full-year estimate.
  • Overall portfolio occupancy improved to 91.5% (vs 91.1% in 3QFY18). Singapore portfolio occupancy improved to 89.5% (vs 88.8% in 3QFY18), due to higher, 20 Tuas Avenue 6 and Xilin Districentre Building D. Australian portfolio occupancy was maintained at 98.5%.
  • Acquisition of 169-177 Australis Drive in Derrimut, Melbourne, Australia for A$34.0m (S$34.5m) is expected to be yield accretive. The transacted price of A$34.0m (S$34.5m) is fair (in line with independent valuation by Savills). 169-177 Australis Drive has an NPI yield of 6.5% (post transaction costs). The property is freehold, fully occupied with NLA of 334,198sf and WALE of 3.0 years. Key tenants include Hitachi Transport System, United Wholesalers, and HB Commerce.
  • Average debt maturity improved to 3.2 years (vs 2.8 years in 3QFY18), due to the issue of S$200m seven-year notes at 3.14% in Mar 18 and extension of S$200m committed revolving credit facility by three years. The proportion of borrowings on fixed rate loans also increased to 71.9% (vs 70.5%), which in our view provides stability in terms of interest expenses going forward.
  • Positive overall rental reversion of 0.7% in FY18. The Singapore portfolio had a 0.5% reversion for leases renewed, dragged by the high-specifications industrial segment’s -6.6% (due to a single lease renewal as a showroom), while the Australia portfolio had a 1.8% reversion. Management guided for slight improvement in rent reversions for FY19.
  • Gearing decreased marginally to 34.4% during the quarter (vs 3QFY18: 35.2%), providing debt headroom of S$1.0b to make DPU accretive acquisitions.
  • AREIT helmed by new CEO. Mr William Tay Wee Leong took over as CEO in Feb 18, bringing with him 22 years of real estate experience (ranging from investments, business development, asset and fund management) and a deep understanding of the Singapore industrial market. As its new CEO, Mr Tay brings with him strong real estate and investment management expertise, which were honed over the course of leading and growing cross- border teams, regional investments and projects with the Ascendas-Singbridge Group.
  • Expect acquisitions in new markets, like Europe and the US. Management has been looking at both markets for new acquisitions. While the US has stronger deal-flows, management has a preference for European deals (due to similarities in risk-reward profiles to investments made by AREIT). More importantly, management is looking for scalability as the leading criteria, in the locations they choose. For instance, they have been able to scale up their investments in Australia to about S$1.5b in only two years.
  • Industrial rents still declining in Singapore amid signs of stabilisation. Industrial rents weakened across the board on a q-o-q and y-o-y basis, with the sharpest decline in upper floor factory rents (-5.3% y-o-y and -0.8% q-o-q), according to CBRE. However, they noted that leasing demand has been improving, led by the semiconductor, e-commerce and aerospace industries. 
  • Industrial forward supply has also moderated to about 9.14m sf in 2018 (vs 20.9m sf in 2017). The better demand-supply dynamics is expected to improve occupancies, and allow rents to stabilise over the course of 2018. Management sees a better outlook for business park and high-tech spaces than the logistics segment.

Vikrant Pandey UOB Kay Hian | Peihao Loke UOB Kay Hian | http://research.uobkayhian.com/ 2018-04-24
SGX Stock Analyst Report BUY Maintain BUY 3.050 Same 3.050