Ascendas REIT - Maybank Kim Eng 2018-10-26: A Slower Quarter…

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U) | SGinvestors.io ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Ascendas REIT - A Slower Quarter…


Target Price cut 3%; Reiterate BUY on overseas diversification

  • Ascendas REIT's 2Q19 DPU was below our forecast due to weaker Singapore occupancies. We cut DPU by 4-5% to reflect this, as well as the recently completed second UK deal and new units issued. Lower Singapore contributions were offset by its rising overseas growth engines.
  • We continue to like Ascendas REIT for its scale and see it as the best proxy to recovering sector fundamentals given its concentrated business parks and high-specs portfolio. Following its UK entry, we see further momentum in its diversification initiatives to drive upside to our FY19-21E 2.8% DPU CAGR.
  • Our DDM-based Target Price is revised down slightly to SGD2.95 (COE: 7.4%, LTG: 2.0%). Supported by 20% total return upside, maintain BUY.



Slight drag occupancies

  • Ascendas rose 1.1% y-o-y with contributions in Australia (100, 108 Street), the UK (first 12 logistics property logistics portfolio) and redevelopment Singapore (20 Ave1). NPI dipped 1.0% y-o-y with the reversal of 2Q18.
  • DPU fell 4.2% y-o-y on higher interest units.
  • Portfolio overseas assets, Singapore fell q-o-q from 88.1% to 7.1%. This was largely due to non-renewals at logistics properties 40 Lane and 9 South 3.
  • Ascendas REIT achieved +2.3% rental stronger +10.5% in 1Q19 a year ago, and expects this to FY18.


DPU levers from overseas growth, SG redevelopment

  • Management sounded a more sombre tone on its Singapore operations as tenants are still rationalising against a tail-end of high supply. However, Ascendas REIT sees opportunities to scale up its UK AUM with more accretive single-asset deals. Its Singapore properties meanwhile could support stronger redevelopment potential over the medium term.


Adjusting estimates, including 2nd UK deal

  • We factor in recently completed deals, including the second UK portfolio acquisition at GBP257.5m (SGD459.2m) partially funded by the 7 Sep SGD452.1m equity fund raising (178.0m new units at SGD2.54/unit).
  • Meanwhile an announcement of its proposed build-to-suit facility development in Singapore at SGD109.0m is likely forthcoming.


Swing Factors


Upside

  • Earlier-than-expected pick-up in leasing demand driving improvement in occupancy.
  • Better-than-anticipated rental reversion trend.
  • Accretive acquisitions.

Downside

  • Prolonged slowdown in economic activity could reduce demand for industrial space, resulting in lower occupancy and rental rates.
  • Termination of long-term leases contributing to weaker portfolio tenant retention rate.
  • Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.







Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-10-26
SGX Stock Analyst Report BUY MAINTAIN BUY 2.95 DOWN 3.050



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