ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)
Ascendas REIT - Good Entry Point
- Ascendas REIT's portfolio occupancy improved slightly to 91.9%.
- Negative rental reversions of 2.3% in 3Q20 but 9M20 figure still positive at 4.2%.
- Green initiatives a positive step towards sustainability.
Ascendas REIT's 3Q20 operational updates
- Ascendas REIT (SGX:A17U) provided a business update for 3Q20. No P&L and DPU figures were given as Ascendas REIT had adopted the announcement of half-yearly financial statements.
- Operationally, positives came from an uptick in overall portfolio occupancy rate to 91.9% (+0.4 ppt q-o-q). This was led by Singapore (+0.9 ppt to 88.8%) due to higher occupancy at Cintech II (from 0% to 100%) and 40 Penjuru Lane (85.5% to 98.8%).
- Occupancy in Australia was down slightly by 0.9 ppt due to Brisbane, but still high at 97.5%, while that of UK and US were stable at 97.5% and 92.0%, respectively.
Rental reversions turned negative for the quarter but still in positive territory for 9M20
- Although Ascendas REIT’s portfolio occupancy was firm, average portfolio rental reversions for leases renewed in 3Q20 came in at -2.3%. This was the first negative rental reversion registered since the quarter ending 31 Mar 2018. However, rental reversions remained positive at 4.2% for 9M20 and Ascendas REIT maintained its guidance for a low single digit positive rental reversion for the full-year.
- Delving deeper into the breakdown for 3Q20, rental reversion in Singapore was -2.8%, with the main drag coming from Logistics & Distribution Centres (- 16.2%) and High-Specifications Industrial and Data Centres (-3.3%). For the former, this was attributed to renewals at logistics properties in the Western part of Singapore where there is supply pressure and rising vacancies. Some of its tenants in this area have also been affected by clients in the F&B and events related businesses and hence AREIT decided to compromise on rents to retain the tenants.
- On the other hand, one bright spot came from robust rental reversions of +11.5% in the US.
- Ascendas REIT also highlighted that it had provided S$11.3m of rent rebates to tenants in Singapore YTD. It had previously estimated that rent waivers are to amount to less than S$20m for FY20. We believe the situation is tracking better than Ascendas REIT’s initial expectations.
Focus on green sustainability
- We like Ascendas REIT’s ongoing sustainability drive. It recently issued a S$100m Green bond and S$300m Green Perpetual Securities under a newly established Green Finance Framework, and also has the largest number of BCA Green Mark properties amongst S-REITs.
- Ascendas REIT continues to be one of our top picks within the S-REITs sector. Ascendas REIT's share price is trading at an attractive distribution yield of 5.1% for FY20F and 5.4% for FY21F (as at 26 Oct closing price), which we deem a good entry point.
- We also see upside potential from inorganic growth opportunities ahead given AREIT’s healthy balance sheet (gearing -1.2 ppt q-o-q to 34.9%) and geographical reach. Our fair value estimate remains unchanged at S$3.92. BUY.
- 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
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https://www.iocbc.com/
2020-10-27
SGX Stock
Analyst Report
3.920
SAME
3.920
