Ascendas REIT - Maybank Research 2022-02-09: New Economy Growth Proxy

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Ascendas REIT - New Economy Growth Proxy

Ascendas REIT (SGX:A17U) achieved DPU growth of 2.4% y-o-y in 2H21, with FY21 DPU at +3.9% y-o-y, driven by stronger portfolio occupancy and rental reversion. The results missed ours and consensus’ estimates by 3%, due to higher-than-expected performance fees. Its fundamentals remain strong, backed by scale, rising DPU visibility, upside from acquisitions and/or redevelopments, and further overseas diversification.

With S$13.0b or 80% of AUM entrenched in new economy assets, Ascendas REIT remains the best S-REIT growth proxy.

Ascendas REIT's portfolio occupancy rose to 93.2% in 4Q21, from 91.7% in 3Q21, as higher occupancies in Singapore (from 88.5% to 90.2%), Australia (97.5% to 99.2%) and the US (91.4% to 94.5%), offset a dip in UK/Europe (98.2% to 96.7%). In Singapore, tenants in the IT/data centres, biomedical, and engineering segments accounted for the highest proportion of new demand in FY21 by gross rental income at 26%, 25%, and 11%.
Demand from new economy sectors, at 78% of gross revenue, have pushed vacancies to the tightest in five years, and should support leasing efforts into the coming quarters.

Ascendas REIT's portfolio delivered a +2.9% rental reversion in 4Q21 (from +3.7% in 3Q21) with FY21 at +4.5% (versus +3.8% in FY20). Reversions in Singapore eased to +2.3% (from +3.6% in 3Q21) and were better for light industrial and flatted factories at +3.5% (versus +1.1%), and logistics & distribution centres at +3.1% (versus +4.6%).
Management maintained a low single-digit positive guidance for FY22, and we remain optimistic on the rental outlook, as Singapore’s industrial rents are bottoming out, and its expiring leases in Australia supported by strong logistics demand.

Ascendas REIT's AUM jumped 19% y-o-y to S$16.3b, with over S$2.1b of acquisitions completed during the year, while same-store valuation rose 3.3% y-o-y, due to tighter cap rates for UK logistics (25bps), and in Australia, the suburban offices (37bps) and logistics assets (101bps). Gearing remains healthy at 35.9% (versus 37.4% at end-Sep 2021), with a S$4.8b debt headroom (at 50% limit).
Ascendas REIT sees potential to scale AUM in its core overseas markets, as cap rates range is wide at 4-7% and is open to grow in secondary locations, and conversion of well-sited older Singapore assets to data centres.
See
Our forecasts and S$3.65 DDM-based target price for Ascendas REIT (COE: 6.2%, LTG: 2.0%) are unchanged. We see Ascendas REIT's valuations as undemanding at 5.9% FY22 yield and ~4% DPU CAGR for this large-cap liquid name. BUY.

Chua Su Tye Maybank Research | https://www.maybank-ke.com.sg/ 2022-02-09

SGX Stock Analyst Report BUY MAINTAIN BUY 3.650 SAME 3.650