Ascendas REIT - OCBC Investment 2022-08-03: All-rounded Performance

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Ascendas REIT - All-rounded Performance

Ascendas REIT's 1H22 distribution per unit (DPU) rose 2.8% y-o-y to S$0.07873
Robust 2Q22 positive rental reversions of 13.2% while portfolio occupancy increased to 94.0%.
Aggregate leverage ratio is stable at 36.7% with 80% of borrowings hedged.

Ascendas REIT (SGX:A17U) reported an all-rounded set of 1H22 results with stronger portfolio occupancy rates, improved rental reversions, slightly lower aggregate leverage and growth in DPU, though not without headwinds such as a bump in utility costs.
Ascendas REIT's 1H22 gross revenue rose 13.7% y-o-y to S$666.5m, but net property income (NPI) grew at a smaller magnitude of 7.0% y-o-y to S$476.9m due to a compression in NPI margin by 4.5 percentage points (ppt) to 71.6%. This was in turn driven by higher utility expenses for its Singapore properties.
Management reiterated its guidance for its share of utility costs to increase ~50-70% in FY22, although it had already locked in its utility contract until the end of FY22. It also intends to raise its service charges from Oct 2022. Management is in the process of a tendering exercise for a two-year utility contract from Jan 2023.
Although we believe tariff rates are likely to increase compared to its 2022 locked-in rates, given higher oil price assumptions used by the electricity providers, the percentage increase in FY23 is likely to be smaller as compared to the change in FY22.
Ascendas REIT's DPU for 1H22 came in at 7.873 Singapore cents, representing y-o-y growth of 2.8%. This was in-line with our expectations as it accounted for 49.3% of our FY22 forecast.

Ascendas REIT’s portfolio occupancy rose 1.4 ppt q-o-q to 94.0%. All key regions recorded an increase, with the exception of Australia, which saw a marginal 0.2 ppt q-o-q decline to 96.6%.
Portfolio rental reversions surprised on the upside in 2Q22, coming in at a robust 13.2% for the entire portfolio. This was broad-based as all regions registered double-digit increases, with the US (+15.3%) and Australia (+15.2%) leading the way, followed by Singapore (+13.0%) and UK/Europe (+11.7%). This culminated in 1H22 rental reversions of 9.4%.
Management raised its guidance for rental reversions in FY22 to be in the positive mid-single digit range, versus low-single digit previously.

In terms of financial position, Ascendas REIT’s aggregate leverage ratio inched down 0.1 ppt q-o-q to 36.7%, while its weighted average all-in cost of debt remained2.0% decline in its FY21 DPU.
See

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2022-08-03

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