Ascendas REIT - Phillip Securities 2021-08-04: Industrials Turning The Corner


Ascendas REIT - Industrials Turning The Corner

  • Ascendas REIT (SGX:A17U)'s 1H21 DPU of S$0.0766, up 5.4% y-o-y, in line at 48% of our FY21e forecast.
  • Pick-up in portfolio occupancy to 91.3%, strong 1H21 reversions of +6.4% and better leasing sentiment in Singapore.
  • Reiterate BUY on Ascendas REIT. DDM target price (COE 6%) for Ascendas REIT unchanged at S$3.65. Ascendas REIT remains our top pick in the sector for its scale and diversification.

Ascendas REIT 1H21 - The Positives

Pick-up in occupancy.

  • Ascendas REIT's portfolio occupancy improved q-o-q from 90.6% to 91.3%, led by Singapore (+1.0ppt), Australia (+0.9ppt) and the US (+0.3ppt). There was a slight dip of 0.2ppt in the UK due to a non-renewal. Singapore occupancy rose to 87.9% following full occupancy at 31 Joo Koon Circle, a light industrial property which was vacant back on 31 Mar 2021. The property is now fully leased to a biomedical tenant on a 20-year lease.
  • Australian occupancy improved to 95.8% after a lease was signed at a logistics asset in Sydney. This brought the asset’s occupancy to 54%, from zero in 1Q21.
  • UK occupancy remained high at 98.2% despite the 0.2ppt dip.

2Q21 reversions of +8.9% lifted 1H21 reversions to +6.4% (1Q21: +3.0%).

  • Singapore reversions were +3.4%, better across the asset classes except integrated development, where reversions were down 3.1% for two small leases. Reversions for logistics, high-spec, business space and light industrials came in at 4.9%, 4.8%, 3.7% and 1.3% respectively.
  • Reversions in the US were strong at 26.3%, towering above 1Q21’s 6.2%. In-place rents for its US portfolio, which comprises business space, are 10-30% below market, which should provide positive reversions in the coming years. New leases in 1H21 were primarily signed with the biomedical (34%), IT (19.5%) and lifestyle, retail & consumer-product (9.4%) sectors.

Ascendas REIT 1H21 - Negative

Policy-related vacancies in Singapore.

  • Assets built on JTC land are subject to the JTC’s anchor-tenant and subleasing policies. They also have to adhere to URA zoning rules for the use of space. Some vacancies have been attributed to these policies, which may take longer lead times to replace anchor tenants.


  • A higher plot ratio has been approved for the redevelopment of 1 Science Park Drive, formerly leased to TÜV SÜD. This will increase the land’s GFA by 3.5x from 30k sqm to 100k sqm. Preliminary plans are three vertical campuses, fitted with IT and life-science specifications. Given significant development costs of S$800mn-1bn, Ascendas REIT may redevelop this property via a JV with sponsor CapitaLand (SGX:C31). This will leave headroom for it to pursue other AEI, redevelopment and build-to-suit opportunities. More details will be released at a later date.
  • Tenants remain cautious although sentiment has generally improved in Singapore. Requests for rebates and lease restructuring have fallen dramatically. In previous quarters, lease discussions were centred on short-term leases or extensions. In recent negotiations, tenants have been more willing to look at 2-3-year leases. UK rents are flat. Tenants are favouring shorter leases for flexibility instead of the 15-20-year leases which are common in the UK.
  • New acquisitions and completed developments are expected to support FY21e DPU growth of 9.2%. These include Grab’s built-to-suit property which was handed over to the tenant on 21 July 2021 and UBIX, which is being repositioned from a light-industrial to high-spec asset sometime in 4Q21.
  • In 1H21, 0.5 month of rebates amounting to S$0.7mn were provided to support F&B and retail tenants in Singapore reeling under Phase 2 Heightened Alert measures. Another S$0.7mn in rebates for 2H21 are expected in compliance with rental support of two weeks as mandated by the government. The total amount will still be lower than the S$12.8mn or 1.7% of revenue in rent rebates dished out in FY20.

Maintain BUY rating on Ascendas REIT and DDM-based target price of S$3.65

Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2021-08-04
SGX Stock Analyst Report BUY MAINTAIN BUY 3.650 SAME 3.650