Ascendas REIT - CGS-CIMB Research 2021-04-23: Robust Growth Outlook

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Ascendas REIT - Robust Growth Outlook

Positive rental reversions in 1Q, although portfolio occupancy slipped q-o-q.
Positive rental reversion guidance maintained for FY21F.
Reiterate ADD on Ascendas REIT with an unchanged DDM-based target price of S$3.30.

In its 1Q21 business update, Ascendas REIT (SGX:A17U) reported a slight q-o-q dip in portfolio occupancy to 90.6%, mainly on the back of lower occupancy in Singapore and Australia portfolio, partly offset by an improvement in UK/Europe. Rental reversion averaged +3% (4Q20: +2.5%).
Management reiterated that it expects to achieve low single-digit positive rental reversions for FY21F.
Ascendas REIT also completed the purchase of 11 data centres in Europe as well as a suburban office in Sydney in 1Q. Aggregate leverage stood at 38% at end-1Q21, translating to an available debt headroom of S$3.8bn, based on a 50% limit, to pursue inorganic growth opportunities.

Singapore portfolio occupancy slipped to 86.9% in 1Q due to non-renewal at the TÜV SÜD PSB Building (which is planned for redevelopment) and 138 Depot Road. Meanwhile, it achieved a +2.9% rental reversion, led by uplifts at business and science parks, logistics and distribution centres as well as light industrial and flatted factories segments. New demand for space came from the biomed and electronics segments and distributors and trading companies.
Ascendas REIT has a remaining 13.6% and 23.7% of leases in Singapore to be renewed in 9M21F and FY22F. These are mainly business and science parks, hi-spec industrial and logistics and distribution centre spaces.
In terms of redevelopment opportunities, Ascendas REIT has a pipeline of S$337.5m worth of enhancement projects, to be gradually completed between 2Q21-1Q23F.

Occupancy for the Australia portfolio dipped to 94.9% on non-renewals. There were no leases expiring in 1Q.
Ascendas REIT has 3% and 12.7% of leases due to be re-contracted in 9M21F and FY22F, the bulk of which are in Melbourne and Brisbane.
US portfolio occupancy was relatively stable at 92.5% and its business parks & office properties enjoyed a +6.2% rental reversion in 1Q. There is a minimal 4% of US leases to be renewed for 9M21F.
The recent acquisition of European data centres is earnings enhancing and provides Ascendas REIT with long-term income visibility, with a weighted average lease expiry (WALE) of 4.6 years, in our view.

We leave our FY21-23F DPU estimates for Ascendas REIT unchanged and retain our DDM-based target price of S$3.30. We continue to like Ascendas REIT for its diversified and resilient portfolio and strong inorganic growth visibility.
See
Potential catalysts include faster-than-expected global recovery and accretive new acquisitions.
Downside risks include a protracted economic downturn.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-04-23

SGX Stock Analyst Report ADD MAINTAIN ADD 3.300 SAME 3.300