ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)
Ascendas REIT 1Q21 Business Update - Resiliency From Diversification; Growth From Acquisitions
- Ascendas REIT achieved positive rental reversion of 3% in 1Q21 driven by Singapore and the US. Portfolio occupancy dipped slightly by 1.1ppt q-o-q to 90.6%. All-in weighted average cost of debt improved by a significant 0.5ppt q-o-q to 2.2%.
- We like Ascendas REIT for its blue chip tenant base and diversification in terms of asset types and geographical regions.
- Ascendas REIT provides recurrent and resilient 2022 distribution yield of 5.2%. Maintain BUY with target price at S$3.82.
Ascendas REIT (AREIT) provided a business update for 1Q21.
Positive rental reversion driven by Singapore and the US.
- Ascendas REIT (SGX:A17U) achieved positive rental reversion of 3% in 1Q21, driven by business & science parks (+2.8%) and logistics & distribution centres (+5.6%) in Singapore and business parks (+6.2%) in the US. New demand came mainly from the electronics and biomedical industries, which accounted for 34% and 29.3% of contribution to gross rental income respectively.
Portfolio occupancy dipped slightly by 1.1ppt q-o-q to 90.6% in 1Q21.
- In Singapore, occupancy dropped by 1.5ppt q-o-q to 86.9% due to non-renewals at TUV SUD PSB Building at Science Park I (earmarked for redevelopment) and 138 Depot Road (occupancy dropped from 87% to 72%).
- In Australia, occupancy dropped 2.5ppt q-o-q to 94.9% due to non-renewals at 1 Distribution Place in Sydney (single tenanted) and 62 Stradbroke Street in Brisbane (occupancy dropped from 100% to 62%).
- Ascendas REIT is working on a pipeline of replacement tenants to backfill the vacated space in Australia.
Started 2021 with a bang.
- Ascendas REIT completed two acquisitions worth a total of S$1,189m in 1Q21. It completed the acquisition of suburban office 1-5 Thomas Holt Drive located at Macquarie Park, Sydney for S$284m in Jan 21. It also completed the acquisition of 11 data centres across five cities in the UK and Europe for S$905m in Mar 21.
Prudent capital management.
- Ascendas REIT has secured new green loans of US$448.6m (S$593.6m) in 1Q21. All-in weighted average cost of debt has improved 0.5ppt q-o-q to 2.2%. Aggregate leverage has increased by 5.2ppt q-o-q to 38% as the two abovementioned acquisitions are financed by additional borrowings. Ascendas REIT has debt headroom of S$3.8b based on regulatory limit on aggregate leverage of 50%.
STOCK IMPACT
Benefitting from multinational companies expanding in Singapore.
- Ascendas REIT has received enquiries from foreign companies in the technology, biomedical and capital equipment sectors. They are potential new tenants for multi-tenanted buildings and convert-to-suit facilities (redevelop light industrial building into high-specification industrial building). Singapore has attracted foreign direct investments due to political stability and its ability to bring the COVID-19 pandemic under control.
More acquisitions are forthcoming in 2021.
- Ascendas REIT secured accretive acquisitions worth S$1.4b in Singapore, Australia and the US in 2020 (completed S$973m in 2020 and S$535m to be completed over the next two years). It has an optimal asset mix 60:40 between Singapore and overseas markets. Having expanded overseas at a frantic pace over the past five years (investment mandate extended to overseas properties in Aug 15), Ascendas REIT could refocus on expanding within Singapore in 2021.
- Potential acquisitions from sponsor CapitaLand include Ascent at Science Park I (GFA: 555,030sf) and Galaxis (75% stake) at one-north (GFA: 742,050sf). Key tenants at Ascent are Johnson & Johnson, Dyson, Merck and Prestige Biopharma. Key tenants at Galaxis are Canon, Sea Ltd, Oracle and Avaloq.
Acquired data centres in Europe.
- Ascendas REIT has completed the acquisition of 11 data centres located across the UK (four), Netherlands (three), France (three) and Switzerland (one) from vendor Digital Realty Trust for S$905m in Mar 21. The acquisition provides an initial net property income (NPI) yield of 6%. Nine data centres, representing 93% of the acquired portfolio's assets under management (AUM), are located in London, Amsterdam and Paris, which are the top co-location data centre markets in Europe.
- The acquisition would expand exposure to the fast-growing data centre market from 4% to 10% of Ascendas REIT's AUM. The exposure to UK/Europe would expand from 6% to 12% of AUM.
- The portfolio has high occupancy rate of 97.9% and long WALE of 4.6 years by rental income. 83% of the leases by rental income have embedded annual rent escalations of 1-3%.
Adds a new engine for growth and expansion.
- The acquisition of 11 data centres in Europe has injected a new dimension for growth. There is room for asset enhancements for the 11 data centres via:
- repositioning some powered shell data centres into co-location data centres, and
- converting ancillary office spaces into data halls.
- Over the longer term, Ascendas REIT's management intends to build scale for data centres in Singapore and Europe, focusing on core and shell data centres.
EARNINGS REVISION/ RISK
- We maintain our existing DPU forecast for Ascendas REIT.
VALUATION/ RECOMMENDATION
- Maintain BUY on Ascendas REIT. Our target price of S$3.82 is based on DDM (cost of equity: 6.0%, terminal growth: 1.8%).
- See
SHARE PRICE CATALYST
- Resiliency from Business Parks and Logistics segments.
- Contributions from development projects and AEIs.
Jonathan KOH CFA
UOB Kay Hian Research
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https://research.uobkayhian.com/
2021-04-28
SGX Stock
Analyst Report
3.820
SAME
3.820
