Ascendas REIT - UOB Kay Hian 2021-10-20: Outlook Brightens, Redevelopment Opportunities Beckon

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Ascendas REIT - Outlook Brightens, Redevelopment Opportunities Beckon

Ascendas REIT (SGX:A17U) provided a positive business update for 3Q21 as the outlook brightens. It achieved positive rental reversion of 3.7% driven by Singapore and the US. Occupancies for Singapore and Australia edged higher by 0.6ppt and 1.7ppt q-o-q respectively to 88.5% and 97.5%.
Having completed the development of Grab HQ, Ascendas REIT could move on to redevelop TÜV SÜD PSB Building at Science Park I.
Ascendas REIT provides a resilient 2022 distribution yield of 5.5%. Maintain BUY.

Positive rental reversion driven by Singapore and the US. Ascendas REIT achieved positive rental reversion of 3.7% in 3Q21 (1Q21: 3%, 2Q21: 8.9%). In Singapore, business space, high-specifications industrial buildings & data centres and logistics & distribution centres provided healthy reversions of +3.7%, +5.1% and +4.6% respectively. New demand was derived mainly from biomedical, logistics & supply chain management and engineering, which accounted for 21%, 18% and 16% of new contribution to gross rental income. Business parks in the US registered strong reversions of +15% driven by Portland. Management maintains guidance of positive low single-digit rental reversions for 2021.
Portfolio occupancy improved by 0.4ppt q-o-q to 91.7% in 3Q21. In Singapore, occupancy improved by 0.6ppt q-o-q to 88.5% due to higher occupancy at 21 Changi South Ave 2, Techplace I and 8 Woodlands Terrace. In Australia, occupancy improved 1.7ppt q-o-q to 97.5% due to a new lease for 1 Distribution Place, a logistics property located in Sydney. Occupancy for the US dropped 1.4ppt q-o-q to 91.4% due to a tenant downsizing at Perimeter Three, a six-story business park property at Perimeter Park in Raleigh.

The built-to-suit (BTS) business park property for Grab’s headquarters was completed and handed over to Grab on 30 Jul 21. It comprises two tower blocks (nine storeys and four storeys) with NLA of 455,420sf connected by a sky bridge. It is located at one-north and is a one-minute drive to Ayer Rajah Expressway and a 10 minutes’ drive to the Central Business District. It is fully leased to Grab for 11 years with a 5-year renewal option. It provides an NPI yield of 6.0%.

Ascendas REIT’s aggregate leverage was relatively unchanged at 37.4% as of Sep 21. All-in weighted average cost of debt was stable at 2.4% and average debt maturity is healthy at 3.5 years. Ascendas REIT has debt headroom of S$4.2b based on regulatory limit on aggregate leverage of 50%. Green financing totalled S$1.2b and accounted for 18% of total borrowings.

Management expects the global economic achieved A rating and was ranked 1st for industrial REITs in GRESB Public Disclosure 2021. It is ranked 3rd for the REITs and business trust category in the Singapore Governance and Transparency Index.

We maintain our existing DPU based on DDM (cost of equity: 6.0%, terminal growth: 1.8%).
See
Catalysts:
- Resiliency and growth from the business parks, logistics and data centre segments.
- Contributions from development projects and AEIs.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-10-20

SGX Stock Analyst Report BUY MAINTAIN BUY 3.830 SAME 3.830