Ascendas REIT - DBS Research 2020-04-29: Strength In Diversity


Ascendas REIT - Strength In Diversity

  • Portfolio occupancy improved 0.8% q-o-q to 91.7%.
  • Ascendas REIT (SGX:A17U) reported positive rental reversion of 8.0% for its portfolio.
  • Minimal provisions for F&B and retail tenant rebates; income retention not necessary at this juncture.
  • Maintain BUY with a Target Price of S$3.45.

Healthy capital management metrics

  • Ascendas REIT's gearing inched up from 35.1% to 36.2% q-o-q mainly due to the acquisition of a 25% stake in Galaxis for S$102.9m.
    • AEIs at The Capricorn and Plaza 8 amounting to S$14.5m were completed in 1Q20.
    • Divestment of 3 properties were completed in the quarter - Wisma Gulab, 202 Kallang Bahru and 25 Changi South Street 1.
  • Galaxis was acquired at NPI yield of 6.1%
    • Currently 99.6% occupied.
    • Will not be considering acquiring the remaining 75% stake in the near future amid the COVID-19 pandemic.
  • With the increased gearing limits of 50%, Ascendas REIT currently has debt headroom of c.S$3.8bn.
  • Interest coverage ratio and weighted average debt tenure remains robust at 5.0x and 3.8 years respectively.
  • S$568m of borrowings will be due in FY20; S$1.3bn of unutilised credit facilities available.

Improved occupancy and positive rental reversions

  • Ascendas REIT's portfolio occupancy increased 0.8% q-o-q to 91.7%.
    • Mainly due to higher occupancy for Singapore portfolio - higher occupancies at 40 Penjuru Lane and LogisHub@Clementi.
    • Australia, UK and US reported marginal dips in occupancy in 1Q20.
  • Portfolio rental reversions of 8.0% in 1Q20; Positive rental reversions in Singapore, Australia and the US.
    • In Singapore, highest positive reversions were from high-specification industrial/data centres (12.2%) and integrated developments (15.6%).
    • In Australia, suburban offices reported 15.7% positive reversion.
  • Rental reversions in 1Q20 pertained to leases that were renewed 3-6 months ago. With uncertainties caused by COVID-19, rental reversions for the rest of FY20 are expected to remain flat
  • Development of business park for Grab delayed by one quarter to 1Q21. Other redevelopments to be completed in FY21 and FY22 are on track. S$1.2m AEI at Aperia is on track for completion in 3Q20
  • Expect tenant retention and renewal for expiring rents to remain strong; expansion plans for tenants in the technology sector across geographies are intact

Looking ahead

  • No intention to retain income presently as portfolio still remains healthy, unless conditions deteriorate significantly in the next quarter.
  • Approximately 20% of tenants in Singapore have enquired about rental rebates and reliefs, mainly related to property tax rebates announced by the government.
  • Property tax rebates will be fully passed on to tenants. Only 4% of tenants have enquired about rental rebates and deferment (they account for less than 1% of revenue).
  • Ascendas REIT will provide more help for F&B and retail tenants by matching the rebates that the government has announced.
  • Provisions of approximately S$2m has been made in 1Q20 mainly for F&B and retail tenants.
    • May look at a further S$2m in rent rebates for the months of April and May.
  • Request for rental deferments in other markets remain low.
    • One request from a tenant in Australia from the travel sector.
    • Eight requests in the UK.
    • 16 requests in the US but their rentals only total c.$20,000 each month.

Our thoughts

Dale LAI DBS Group Research | Derek TAN DBS Research | 2020-04-29
SGX Stock Analyst Report BUY MAINTAIN BUY 3.450 SAME 3.450