Ascendas REIT - CGS-CIMB Research 2019-12-09: Not Time To Ascend For Now

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Ascendas REIT - Not Time To Ascend For Now

The recent US acquisitions boosted AUM to S$12.8bn and overseas exposure to 28%.
The Singapore industrial property market continues to reflect potential for acquisitions and asset enhancements for Ascendas REIT.
Maintain HOLD as rental growth in FY20F could be anaemic.

In Nov 19, ASCENDAS REIT (SGX:A17U) announced the acquisition of 28 business park properties in the US for a total acquisition cost of S$1.3bn and a pre-cost net property income (NPI) yield of 6.4%. Post-acquisition, the US portfolio and total overseas exposure will comprise 10%/28% of its enlarged S$12.8bn asset under management (AUM), respectively.
The expansion results in a 0.6% accretion to FY18/19F DPU on a pro-forma basis, according to AREIT. The US acquisitions, as well as that of another two business parks in Singapore, are funded by a mix of debt and equity, which could lower the REIT’s gearing from 36.3% to 34.6%. The S$1.3bn rights issue of 498m new units was done at S$2.63/new unit and a 17% discount to its last traded price.
See Ascendas REIT Announcements; Ascendas REIT Latest News.

In Nov 19, Ascendas REIT acquired Nucleos and FM Global Centre from its sponsor for S$397m, at a 6.7% pre-cost NPI yield. Post-acquisition, this increases its Singapore portfolio’s exposure to business parks to 45%. After this, the sponsor has at least eight other Singapore assets that it could divest to Ascendas REIT, although Ascendas REIT does not have official rights of first refusal on them. The assets were valued at > S$1bn as at Jan 19.
Ascendas REIT currently has four ongoing projects worth S$56.5m, with the largest being the redevelopment of 25 & 27 Ubi Road 4. We think that the rejuvenation of its older Singapore assets may continue, especially since its five assets at the International Business Park (IBP) have had occupancies below 75% over the past seven quarters, trailing the average business park occupancy rate of 85% as reported by JTC.

Amid the global uncertainties and a flattish rental guidance, Ascendas REIT has maintained its streak of positive rental reversions over six consecutive quarters. With 22% of gross rental income expiring in FY20, we expect a weakness in the multi-tenanted spaces due to a supply influx (+7.5%), although this could be offset by continued demand for hi-spec spaces and data centres.

We maintain HOLD on Ascendas REIT as we think the industrial property market would remain anaemic in FY20 due to global uncertainties and a large influx of multi-tenanted space. We think it also needs time to establish its execution track record in the US. See Ascendas REIT Share Price; Ascendas REIT Target Price; Ascendas REIT Analyst Reports; Ascendas REIT Dividend History.
Re-rating catalysts include a faster-than-expected recovery of the industrial property market, major accretive acquisitions and interest rate cuts, while downside risks include major tenant non-renewals.

LOCK Mun Yee CGS-CIMB Research | Ervin SEOW CGS-CIMB Research | https://www.cgs-cimb.com 2019-12-09

SGX Stock Analyst Report HOLD MAINTAIN HOLD 3.150 SAME 3.150