Ascendas REIT - OCBC Investment 2020-04-29: Looks Good For Now, But Mindful Of Challenges Ahead


Ascendas REIT - Looks Good For Now, But Mindful Of Challenges Ahead

  • Positive rental reversions of 8.0% in 1Q20.
  • Portfolio occupancy increased 0.6 ppt q-o-q to 91.7%.
  • Healthy aggregate leverage of 36.2%.

1Q20 operational updates – largely healthy

  • Ascendas REIT (SGX:A17U) provided an operational update for 1Q20. The data points given were encouraging, as portfolio occupancy rose 0.6 ppt q-o-q to 91.7%.
  • Average portfolio rental reversion of +8.0% was achieved for leases renewed in 1Q20. This was broad based, coming in at +7.7% in Singapore (all segments saw positive rental reversion ranging from 0.3-15.6%), +13.7% in Australia and +7.4% in the US. There were no lease renewals in the UK.
  • Ascendas REIT has guided for a flat rental reversion outlook in light of the current uncertainties. We note that management has historically been conservative in its guidance, but the significant uncertainties caused by the COVID-19 pandemic do leave room to be more cautious.
  • There were no P&L and DPU figures given this quarter as Ascendas REIT had adopted the announcement of half-yearly financial statements from FY20.

Assessing potential impact from COVID-19

  • Besides fully passing on the property tax rebates to its tenants in Singapore, Ascendas REIT will also provide additional rent relief to its F&B/retail/amenities and food factory tenants ( < 4% of Singapore portfolio by rental income) for the months of Apr and May. SMEs contribute less than 20% of its revenue in Singapore.
  • In Australia, management has suspended rent collection from retail/F&B tenants ( < 1% of Australia portfolio by rental income) from Apr until restrictions are lifted.
  • To-date, no rent rebates have been given in the UK and US, and none of Ascendas REIT’s tenants in all its markets have indicated that they intend to pre-terminate in the near term, although the leasing environment has become challenging.
  • Industries which are more impacted by COVID-19, such as retail, aviation, oil and gas and hospitality & leisure currently constitute less than 15% of Ascendas REIT’s monthly gross revenue.

Strong balance sheet with ample resources on hand

  • Ascendas REIT’s financial position remains strong, with a healthy aggregate leverage of 36.2%. There is available debt headroom of S$3.8b before it reaches the new regulatory aggregate leverage limit of 50%, although we do not expect management to tread near that level.
  • Ascendas REIT has cash and cash equivalents of S$290m, and S$200m and S$1.1b of committed and uncommitted facilities which it can tap on, respectively.
  • Although we like Ascendas REIT’s diversified portfolio, which comprises Business & Science Parks (42% of AUM), Logistics & Distribution Centre (25%) and High-Specifications Industrial and Data Centres (17%), we see the need to pare our FY20 and FY21 DPU forecasts by 3.1% and 4.5%, respectively. This is to account for softer occupancy and rental assumptions, coupled with a weaker AUD relative to the SGD.
  • Our fair value estimate declines from $3.59 to S$3.52.
  • See Ascendas REIT Share Price; Ascendas REIT Target Price; Ascendas REIT Analyst Reports; Ascendas REIT Dividend History; Ascendas REIT Announcements; Ascendas REIT Latest News.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-04-29
SGX Stock Analyst Report BUY MAINTAIN BUY 3.52 DOWN 3.590