Ascendas REIT - RHB Invest 2022-09-21: Boosting Its Singapore Asset Mix; BUY


Ascendas REIT - Boosting Its Singapore Asset Mix; BUY

  • Ascendas REIT (SGX:A17U)’s recent yield-accretive acquisition of two good quality Singapore assets adds resilience to its portfolio, with further room for upside. Overall metrics are trending in the right direction, with higher occupancy and double-digit rental rate reversions (recorded in 2Q) – this is expected to continue in 2H and outpace cost pressures.
  • The impact of rising interest rates on borrowing cost is manageable, at -2% for every 100bps increase.
  • Ascendas REIT remains our sector Top Pick.

Maiden foray into promising Singapore cold storage logistics sector

  • Maiden foray into promising Singapore cold storage logistics sector via the proposed third-party acquisition of 1 Buroh Lane, a modern Grade-A 5-storey cold storage ramp-up logistics facility.
  • See Ascendas REIT's announcement dated 2022-09-14. The asset has 21 years left on its lease, while the purchase price of S$191.9m (reflecting a 2% discount on its latest valuation) translates into an attractive 7% NPI yield.
  • It is fully occupied by five well-established tenants, with a long WALE of seven years, and built-in rental rate escalations of 2-3% every three years.
  • We see this asset as a good fit for its portfolio, as it offers good long-term growth potential, with strong demand for cold storage logistics facilities outpacing the limited supply in the market. The asset is also well located – it is close to major sea ports, Jurong Port and Tuas Mega Port, and benefits from the megatrend of Singapore’s focus on long-term food security.

Acquisition of Phillips APAC Centre for S$104.8m

  • Acquisition of Phillips APAC Centre for S$104.8m, at a 6% discount to the asset’s latest valuation, with an initial NPI yield of 7.2%(pre-transaction costs).
  • See Ascendas REIT's announcement dated 2022-08-04. The high-tech campus serves as the Asia-Pacific headquarters for Phillips, which will rent back ~66% of the space on a multi-year lease. The overall occupancy rate of the asset stands at 95.7%, from a total of four tenants and a WALE of 4.5 years.
  • We expect its occupancy rate to pick up in the near term, in view of the asset’s central location within Toa Payoh town, along with the potential for positive rental rate reversions.

To be funded by debt and DPU accretion of 1%.

  • With these acquisitions Ascendas REIT’s year-to-date acquisitions amount to S$520m, ie about 50% of managements guidance of ~S$1bn for the full year – which indicates that there may be more new assets to come in 4Q. Singapore will account for ~62% of assets by value, with the rest of the markets being the US (15%), the UK (14%) and Australia (9%).
  • Ascendas REIT's post-acquisition gearing remains comfortable at ~37%, providing ~S$1bn in debt headroom (assuming a 40% cap). Both the acquisitions are expected to be completed by 4Q.

We lift Ascendas REIT's FY22-23F DPU forecast by ~1% to factor in the acquisitions.

Ascendas REIT has changed its name to CapitaLand Ascendas REIT (SGX:A17U) w.e.f 2022-09-30.

Vijay Natarajan RHB Securities Research | https://www.rhbgroup.com/ 2022-09-21
SGX Stock Analyst Report BUY MAINTAIN BUY 3.600 SAME 3.600