ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)
Ascendas REIT - Grabbing A New Tenant
- ASCENDAS REAL ESTATE INV TRUST (SGX:A17U, Ascendas REIT)’s 3Q19 gross revenue and DPU in line with expectation.
- Almost full quarter contribution from Second UK portfolio of 26 logistics assets.
- Build-to-suit development for Grab’s new headquarters at one-north.
- Maintain ACCUMULATE. Raised target price to $2.88 (previously $2.78) due to higher DPU estimate.
The Positives
Positive rental reversions across all segments in Singapore.
- Rental reversions ranged between +1.7% and +10.3% across the five segments, with a weighted average of +3.2%.
- There were no renewals signed in Australia and UK.
Acquisition of Second UK portfolio of 26 logistics properties was completed on 4 Oct.
- S$800mn UK portfolio is now 7% of Ascendas REIT’s total portfolio, compared to 3% in the previous quarter. The UK portfolio has a long weighted average lease expiry (WALE) of 11.3 years compared to Singapore WALE of 3.9 years, thus providing income visibility.
- The earliest lease expiry in the UK portfolio is in FY21.
Total portfolio occupancy remains stable QoQ, inching up from 90.6% to 91.3%.
- This was driven by the Singapore and UK portfolios. For Singapore, there were new take ups which improved occupancy to 87.3%, while the enlarged UK portfolio remained at 100% occupancy.
Secured S$181mn build-to-suit project for Grab’s headquarters at one-north.
- The asset will be a 42,310 sqm GFA business park property. The expected completion is in 4Q 2020. (For comparison, Ascendas REIT’s Giant Hypermart property in Tampines has a GFA of 42,194 sqm.) It will be on a long lease term of 11 years with annual rental escalation and renewal option for a further five years.
- In the grand scheme of things, the property will not make a material impact to Ascendas REIT’s portfolio which currently stands at S$11.1bn.
The Negatives
Q-o-q higher aggregate leverage, but it does not come as a surprise.
- Leverage increased from 33.2% to 36.7% due to new debt to part-fund the second UK portfolio. In our previous report: Ascendas REIT - Acquired Second UK Portfolio, we estimated 36.4% leverage by the end of FY19.
Outlook
- The outlook is positive. Total portfolio faces only 1.6% of expiry by gross rental income in 4Q19. While there is 18.6% of leases for renewal in FY20, it is mostly made up of multi-tenanted buildings; so the potential impact from single-tenant conversions is limited.
Maintain ACCUMULATE; new target price of $2.88 (previously $2.78)
- We expect the yield of ~6% to remain stable due to the large portfolio that is diversified and not materially affected by any single property.
- Our target price gives an implied 1.34 times FY19e forward P/NAV multiple.
Richard LEOW CFA
Phillip Securities Research
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https://www.stocksbnb.com/
2019-01-31
SGX Stock
Analyst Report
2.88
UP
2.780
