Ascendas REIT - CGS-CIMB Research 2020-10-26: Higher Portfolio Occupancy In 3Q


Ascendas REIT - Higher Portfolio Occupancy In 3Q

  • Ascendas REIT achieved higher portfolio occupancy but reversions turned negative in 3Q.
  • Management maintains positive reversion guidance for FY20F.
  • Upgrade Ascendas REIT to ADD rating with a higher DDM-based target price.

Ascendas REIT's 3Q20 business update

  • In its 3Q20 business update, Ascendas REIT (SGX:A17U) saw a slight q-o-q uptick in portfolio occupancy to 91.9% on the back of higher occupancy in Singapore portfolio, partly offset by a slightly weaker Australia take-up.
  • Ascendas REIT's rental reversion in 3Q averaged -2.3% (9M: +4.2%) with drags from Singapore (-2.8%) while US portfolio recorded +11.5%. Management re-iterated that it expects to achieve low single-digit positive rental reversions for FY20F.
  • Ascendas REIT also completed the purchase of a suburban office in Melbourne in Sep 2020 and announced two new acquisitions, in Yennora and Macquarie Park, in Sydney, currently under development, worth S$182.1m. These properties are scheduled to be completed in mid-2021F and mid- 2022F, respectively.

Negative rental reversion in Singapore

  • In Singapore, the negative rental reversions came largely from logistics & distribution centres, hi-specs industrial as well as light industrial and flatted factories, in 3Q20, as management adopted a tenant retention strategy. Nonetheless, leasing activity improved after P2 of the post circuit breaker and the higher take-up in Singapore was due to new demand from government agencies, logistics and supply chain management as well as engineering tenants.
  • Ascendas REIT guided that it provided additional 0.5 months of waiver to retail tenants in Singapore in Aug/Sep 2020. In Australia, it suspended rental collection of F&B tenants ( < 1% of Australia portfolio) until they re-open. No rebates were given for tenants in the UK while only one tenant was given rebate in the US.
  • Nonetheless, leasing environment is expected to remain challenging as tenants reassess or put their expansion plans on hold. Ascendas REIT has a remaining 3.9% and 21.7% of rental income to be renewed in Singapore in 4Q20F and FY21F and minimal expiries overseas.

Robust balance sheet

  • Balance sheet is healthy with gearing at 34.9% and Ascendas REIT has remaining 6% of its total debt to be refinanced for the rest of FY20F.
  • Ascendas REIT issued S$300m of perpetual securities in Sep 2020 at a coupon of 3% and this is likely to result in interest cost savings for the REIT. Based on a 50% aggregate leverage assumption, Ascendas REIT has potential debt headroom of c.S$4.2bn, to fund any acquisitions. This puts the trust in a strong position to evaluate inorganic growth opportunities.

Upgrade Ascendas REIT to ADD

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-10-26
SGX Stock Analyst Report ADD UPGRADE HOLD 3.20 UP 3.120