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

SGinvestors.io

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Ascendas REIT - New Economy Heavyweight

Strong 1H22, raising reversion guidance

• 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,

Occupancy up 1.4ppt, led by Singapore

• 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).

Better reversions, rents on the rise

• 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.

Low gearing, acquisition/development upside

• 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
  • Ascendas REIT's Share Price,
  • Ascendas REIT's Target Price,
  • Ascendas REIT's Analyst Reports,
  • Ascendas REIT's Dividend History,
  • Ascendas REIT's Announcements,
  • Ascendas REIT's Latest News.
• 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