Ascendas REIT - Maybank Kim Eng 2020-02-03: Diversification & Growth

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Ascendas REIT - Diversification & Growth

Ascendas REIT (SGX:A17U)’s DPU fell 12.3% y-o-y as its units increased 16.3% y-o-y following the Nov 2019 SGD1.3b rights issue. But contributions from its assets across all markets improved, helped by positive rental reversions, especially in Singapore.
We see rental growth momentum supporting DPU recovery for the industrial sector’s largest, most liquid name. We revised our forecasts to realign with its new Dec year-end. Our DDM-based Target Price remains unchanged. See Ascendas REIT Target Price (COE: 6.8%, LTG: 2.0%).

Ascendas REIT (SGX:A17U)’s fundamentals are supported by its scale, concentrated Singapore business parks/high-specs portfolio, and DPU upside from further overseas diversification. BUY.

Ascendas REIT's 3QFY19 revenue rose 5.9% y-o-y, helped by contributions from 28 new US and two Singapore business parks from Dec 2019.
Singapore revenue and NPI rose 2.2% y-o-y and 5.8% y-o-y (with FRS 116 adjustments). Its portfolio occupancy was stable at 90.9% (from 91.0% end-Sep 2019), with higher occupancies in Australia (up q-o-q from 95.4% to 97.4%) mitigating lower Singapore occupancies. This fell from 88.1% to 87.2% due to two logistics and a high-specs asset - Wisma Gulab, which with 202 Kallang Bahru were divested at 5.5% and 13.3 above valuations, respectively. New demand was driven mostly by expansion activities of its existing tenants.

Its Singapore properties achieved a strong +8.8% rental reversion, up from +4.0% in the previous quarter, and pushed reversions for FY19 to +6.0% (versus +3.7% for its FY18), with positive reversions across all its asset classes. Its Singapore business parks performed better (+9.2% in FY19), with its cap rates tightening by 40-50bps to 5.25-6.00%, while logistics was weaker (+4.9%).
Ascendas REIT expects to achieve low single-digit reversions in Singapore, and high single-digit reversions for its overseas properties in 2020.
In Australia, the bulk of the 10.4% expiring leases are backed by strong demand growth fundamentals in Melbourne while its US portfolio is currently 10-15% under-rented. Early renewals for its largest US tenants (Carefusion, Nike) have been achieved at higher signing rents.

Management has initiated AEIs at two aging Singapore business parks (Capricorn and Galen) and an Australian logistics asset (484-490 and 490-500 Great Western Highway) to be completed by 1H 2020.
Redevelopment works at iQuest@IBP in Singapore meanwhile should see a doubling in NLA by 3Q 2022.
Low 35.1% leverage supports further deals, with acquisitions from its sponsor in Singapore, and in Australia and UK.
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/ 2020-02-03

SGX Stock Analyst Report BUY MAINTAIN BUY 3.350 SAME 3.350