Ascendas REIT - UOB Kay Hian 2018-10-26: 2QFY19 In-line

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Ascendas REIT - 2QFY19: In-line

Ascendas REIT saw Singapore occupancies decline as tenants deferred their renewals amid uncertainties but continued to look for acquisitions overseas.
Maintain BUY with a target price of S$3.01.

.., based on DDM (required rate of return: 6.7%, terminal growth: 2.0%).
2QFY19 DPU of 3.887 S cents was down 4.2% y-o-y, due to lower contribution from Singapore, higher interest expense, equity raised for the UK portfolio acquisition and build-to-suit (BTS) development.

2QFY19 gross revenue grew by 1.1% y-o-y, driven by new acquisitions from Australia (100 and 108 Wickham Street, 169 Australis Drive and Cargo Business Park), the UK (12 logistics properties), redevelopment for 20 Tuas Ave 1, but partially offset by lower occupancy in Singapore. NPI declined by 1% y-o-y, due to a one-off reversal of accrued operating expense in 2QFY18.
The results are in line with expectations, with 1HFY19 DPU coming in at 47.6% of our full-year estimate.

.. with the successful raising of S$452.1m in equity. At a 33.2% gearing, debt headroom is estimated at S$1.2b (before reaching 40%). All-in-debt cost remained stable at 3.0% (with 84.6% of borrowings on fixed rates).

The renewals were for leases in multi-tenant buildings in Singapore only, led by leasing demand from the transport and storage sector (ie accounted for 24.4% of new demand by gross revenue during the quarter).
No leases were renewed for its UK and Australia portfolios. Management guided on rent reversion seeing a slight improvement in FY19.

Management observed that customers are downsizing operations, moving into their own facilities, or deferring their renewal plans, so as maintain flexibility amid uncertain market conditions. They responded by rolling out more attractive lease packages, incentivising agents (through partnership rewards) to bring about higher retention.
Australia portfolio maintained a high occupancy of 98.5% (vs 98.6% in 1QFY19), while UK portfolio is 100% occupied.
Overall portfolio occupancy remained stable at 90.6% (-0.1ppt q-o-q).

Management guided that see some Singapore located and sitting on connections to MRTs redevelopment, they can improve though they are not ready for interest in markets, where they can find tenants longer assets.
Management noted that as a 8b AUM base UK will allow look into a single.

Peihao LOKE UOB Kay Hian Research | Andrew Chow CFA UOB Kay Hian | https://research.uobkayhian.com/ 2018-10-26

SGX Stock Analyst Report BUY MAINTAIN BUY 3.010 SAME 3.010