Ascendas REIT - Maybank Research 2022-08-02: New Economy Heavyweight

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Ascendas REIT - New Economy Heavyweight

Ascendas REIT (SGX:A17U) achieved DPU growth of 2.8% y-o-y and 3.6% h-o-h in 1H22, with contributions from acquisitions, better occupancies, and stronger rental reversion.
The results were in line with consensus’ and our estimates, and we maintain our forecasts and DDM-based S$3.50 target price (COE: 6.2%, LTG: 2.0%) for Ascendas REIT.

Ascendas REIT's fundamentals remain strong, backed by scale, recovering rents, rising DPU visibility, upside from acquisitions and/or redevelopments, and further overseas diversification. With S$13.4b, or 81% of AUM entrenched in new economy assets,

Ascendas REIT's portfolio occupancy climbed to 94.0% in 2Q22 (from 92.6% in 1Q22), with better occupancies in Singapore (from 90.0% to 91.9%), the UK (96.7% to 97.7%) and US (94.0% to 95.3%).
In Singapore, new demand in 1H22 was attributed to tenants in the engineering/logistics/electronics segments, (at 21%/18%/12% of gross rental income). Enquiries remain high, according to management, and should support leasing efforts into 2H22.
We expect occupancy to be resilient, amid improving demand, and ramping up of its newly redeveloped UBIX asset (from 51.5% in 2Q22 and 18.0% in 1Q22).

Ascendas REIT's portfolio delivered a +13.2% rental reversion in 2Q22 (vs +4.6% in 1Q22), with positive double-digit reversions (at between +11.7% to +15.3%) across its four markets. Singapore’s reversion improved to +13.0% (vs +3.9%), led by its business space (at +19.9%) and logistics (+7.5%) segments. While this was ‘an exceptional quarter’, management has raised reversion guidance to a positive mid single-digit (from a low single-digit in).
We are optimistic on the growth outlook, as Singapore’s industrial rents have bottomed, and Australia’s expiring leases are backed by strong logistics demand.

Ascendas REIT's AUM rose to S$16.6b (vs S$16.4b at end-Mar 2022) with the addition of seven US logistics properties (for S$133.2m at 5.3% NPI yield).
Gearing remains healthy at 36.7% (vs 36.8%), with a S$4.6b debt headroom (at 50% limit). Fixed-rate debt is high at 80%, with a 50bps increase in its base rate expected to lower DPU by ~1%.
See
We see growth levers from AUM expansion, as Ascendas REIT eyes (smaller) bolt-on deals in its core markets, and contribution from S$566m of development/AEI projects.
Ascendas REIT remains the best S-REIT growth proxy, in our view. We see valuations as undemanding at 5.5% yield and ~4% DPU CAGR for this large-cap liquid name. BUY.

Chua Su Tye Maybank Research | https://www.maybank-ke.com.sg/ 2022-08-02

SGX Stock Analyst Report BUY MAINTAIN BUY 3.50 DOWN 3.650