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Simons Trading Research

Author: simonsg   |   Latest post: Fri, 16 Aug 2019, 6:42 PM

 

Ascendas REIT - Recovery Underway

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In Line, Still Our Top Pick

  • Ascendas REIT (SGX:A17U)’s DPU was stable (+0.1% y-o-y) during its Jun 2019 quarter (1Q19), with contributions from its Australian and UK has guided for flat reversions in FY19 on high supply, while we expect a steady recovery in business park and high-specs rents given higher 67-100% pre-commitment levels.
  • Our DPUs are unchanged and DDM-based Target Price SGD3.30 (COE: 6.9%, LTG: 2.0%).
  • Ascendas REIT’s fundamentals are well supported by its scale, concentrated Singapore business parks/high-specs portfolio, and DPU upside from its overseas diversification.
  • We remain positive on S-REITs with downside risk from lower interest rates on slowing economic growth. Ascendas REIT is best placed as the sector’s largest, most liquid proxy.

SG business park, high-specs continue to shine

  • Ascendas REIT's Singapore occupancy improved from 88.3% to 88.9% with new take-ups.
  • Ascendas REIT reported a headline +2.7% rental reversion for leases renewed during the quarter, which was down from a +6.6% in its 4Q18/19. Positive reversions were achieved across its Singapore business/ science parks (+3.7%), high-specs (+3.3%), and light industrial/ flatted factories (+2.2%) segments. Its logistics/ distribution centres recorded a +2.6% reversion, versus +9.7% earlier, in line with a weaker performance across the sub-sector.
  • Tenants from the transport/ storage sectors contributed the largest 28.9% of new demand. A light industrial property divestment of No. 8 Loyang Way for SGD27.0m (at 14.4% above valuation) is expected to complete in the current quarter.

 

Transitory vacancies in Australia

  • Ascendas REIT's overseas assets, with their long WALEs (Australia: 4.3 years, UK: 9.1 years) were 18.8% of its NPI, and set to grow. Its UK portfolio remained fully-occupied, while it dipped in Australia from 98.0% to 92.3% - partly due to transitory vacancies as its largest asset at 94 Lenore Drive in Sydney has been 100% leased from Jul 2019.
  • Reversions were +0.2%, and we continue to see strong demand fundamentals; 5.8% of its gross rental income is due for renewal in FY19 with the bulk of its assets in Sydney.

Source: Maybank Kim Eng Research - 30 Jul 2019

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Chart Stock Name Last Change Volume 
Ascendas Reit 3.06 +0.01 (0.33%) 6,326 

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