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

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ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

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

• We maintain our BUY call with a target price of S$3.45 given Ascendas REIT’s robust operational performance. Its diversification strategy of investing in business park assets in the US is paying-off and the technology sector is proving to be resilient despite uncertainty in the other markets. We also take comfort in management’s confidence of maintaining operating metrics going forward, and ample debt headroom will provide ammunition for further growth.
• See Ascendas REIT Share Price; Ascendas REIT Target Price; Ascendas REIT Analyst Reports; Ascendas REIT Dividend History; Ascendas REIT Announcements; Ascendas REIT Latest News.

Dale LAI DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-04-29

SGX Stock Analyst Report BUY MAINTAIN BUY 3.450 SAME 3.450