ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)
Ascendas REIT - Ready For Growth
Adjusting estimates, top sector top pick, BUY
- 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%).
SG recovery to gain traction in 2020
- 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.
Higher DPU visibility on rising overseas contributions
- 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).
Strong balance sheet; DPU upside on further deals
- 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
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https://www.maybank-ke.com.sg/
2019-12-02
SGX Stock
Analyst Report
3.350
SAME
3.350
