Ascendas REIT - Maybank Kim Eng 2019-12-02: Ready For Growth

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Ascendas REIT - Ready For Growth

We fine-tune estimates following ASCENDAS REIT (SGX:A17U)'s recent EGM which saw unit-holders supporting its proposed acquisition of 28 US and two Singapore business park properties.
Ascendas REIT’s shares have retreated after its SGD1.31b, 15-for-100 rights issuance, even as growth fundamentals are looking up with 14%, 15%, and 15% respective boosts in revenue, NPI, and AUM. We see near-term catalysts from its Singapore recovery, rising overseas contributions, and further acquisition opportunities.

Valuations at 5.5% DPU yield and 4.0% CAGR are compelling for this largest most liquid industrial S-REIT name. Maintain BUY and SGD3.35 DDM-based Target Price (COE: 7.1%, LTG: 2.0%).

We see Ascendas REIT’s rents rising further in 2020 as Singapore’s industrial sector recovery gains traction on easing supply-side pressures and with better visibility for business parks and high-specs. The addition of Nucleos and FM Global Centre at a 6.7% NPI yield should strengthen its business and science park market share as their contributions rise from 42% to 45% of its Singapore AUM.
We await details on its sponsor’s longer-term rejuvenation plans for the aging 30ha Science Park 1. We see higher plot ratios (now 1.2x) vs Mapletree Business City (2.8x) and one-north (4.6x) incentivising redevelopment as demand recovery picks up pace.

Ascendas REIT's overseas NPI contribution should rise following the completion of its first US deal in Dec 2019 (see report: Ascendas REIT - Scaling Up Again). This is set to grow from 29% to 34% in FY22E.
AUM profile is more defensive from its overseas push since 2016, backed by a 29% addition in freehold logistics properties and suburban offices in Australia, the UK and US.
WALE has risen from 3.6 to 4.1 years while business and science park contributions rise from 33% to 42% of its total AUM, supported by demand from higher ‘growth sector’ tenancies (in financial, IT, and medical).

Post-deal, Ascendas REIT's gearing has improved from 36.3% (as of end-Sep 2019) to 34.6%. This is in line with its 11-year average of 34.4%, even as AUM has jumped > 3x during this time.
We estimate debt headroom of SGD0.8-1.8b to support further accretive deals, with Ascendas REIT likely to explore further bolt-on opportunities in key overseas markets, near term.
See Ascendas REIT Share Price; Ascendas REIT Target Price; Ascendas REIT Analyst Reports; Ascendas REIT Dividend History; Ascendas REIT Announcements; Ascendas REIT Latest News.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-12-02

SGX Stock Analyst Report BUY MAINTAIN BUY 3.350 SAME 3.350