Ascendas REIT - CGS-CIMB Research 2021-08-02: Improvement Across The Board

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Ascendas REIT - Improvement Across The Board

Ascendas REIT's 1H21 DPU of S$0.0766 is in line, at 49.5% of our FY21F forecast.
Higher portfolio occupancy amid stronger positive rental reversions in 2Q.
Reiterate ADD on Ascendas REIT with an unchanged DDM-based target price of S$3.31.

Ascendas REIT (SGX:A17U) reported 1H21 gross revenue and net property income of S$586m/S$445.6m, +12.4%/+14.8% y-o-y, underpinned by contributions from new acquisitions in Australia, US and Europe as well as positive rental reversions.
Distribution income of S$311m translates to a DPU of S$0.0766.
Ascendas REIT's portfolio occupancy improved q-o-q across the board to 91.3% (+0.7% pt) while rental reversions averaged 8.9%, coming from US and Singapore. Management reiterated that it expects to achieve low single-digit positive rental reversions for FY21F.
Aggregate leverage stood at 37.6% at end-1H21, translating to an available debt headroom of S$4.2bn, based on a 50% limit, to pursue inorganic growth opportunities.

Singapore portfolio occupancy ticked up 1% pt q-o-q to 87.9% with full occupancy achieved at 31 Joo Koon Circle. New demand came mainly from the biomed, IT and data centre segments. It achieved a +3.4% rental reversion, led by uplifts at hi-spec industrial, logistics and distribution centres and business and science parks segments, which more than offset weaker integrated developments, amenities and retail spaces.
In 2Q, Ascendas REIT granted S$0.7m of rental rebates to F&B/retail tenants in Singapore. Ascendas REIT has a remaining 8% and 24.5% of leases in Singapore to be renewed in 2H21F and FY22F, largely from business and science parks and hi-spec industrial spaces.
Ascendas REIT completed the GRAB Headquarters in July 2021 and contributions are expected to be felt from FY22F onwards. In addition to S$389.3m of ongoing AEIs in Singapore and Australia,
Ascendas REIT indicated it has received approval to redevelop the TÜV SÜD PSB Building into a mixed development with direct connectivity to the Kent Ridge MRT station. The property is expected to have an enlarged GFA of ~112k sqm, catering to IT and life sciences segments. Although the estimated development cost of ~S$800m-1bn is well within Ascendas REIT’s development limit, Ascendas REIT indicated it could also evaluate other options including JVs to optimise this ceiling, in order to be able to tap into other development or built-to-suit opportunities.

Occupancy for Ascendas REIT's Australia portfolio improved to 95.8%. There were no leases expiring in 2Q. Ascendas REIT has 1.6% and 11.8% of leases due to be re-contracted in 2H21F and FY22F. US portfolio occupancy stayed stable at 92.8% with its business spaces enjoying a +26.3% rental reversion in 2Q.
While the US portfolio has ~21.1% of its leases expiring in FY22F, management indicated that this portfolio is still under-rented at present. UK/Europe saw a slight slippage in occupancy although there were no reversions in 2Q.

We leave our FY21-23F DPU estimates unchanged and retain our DDM-based target price of S$3.31 for Ascendas REIT. 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 2021-08-02

SGX Stock Analyst Report ADD MAINTAIN ADD 3.310 SAME 3.310