Ascendas Reit posts higher Q3 DPU of 3.59 cents

22 Jan  6:08 PM

Ascendas Reit (AREIT) has gained approximately 4% month-to-date. AREIT traded at its year-to-date high of $2.38 on 21 April after the local property counter announced its financial results for the year. Closing at $2.35 yesterday (24 April), AREIT is currently trading 6.3% above its 50-day moving average of $2.21.
 
Macquarie Equities Research (MER) issued a report on AREIT on 21 April, maintaining their 12-month target price of $2.57. Here are some excerpts from the report.
 
Event
After market close on Monday, Ascendas Reit posted FY14 distributable income of S$342.0m and DPU of 14.24 S cts (+3.6% YoY), in line with MER' s estimates of S$331.6m and 13.80 S cts. Outperform maintained.
 
Impact
FY14 results highlights. Revenue rose 6.6% YoY to S$613.6m, largely due to acquisitions, namely The Galen (acquired in Mar 13), A-REIT City@Jinqiao (completed in Jul 13) and Nexus@one-north (completed in Sep 13). While the cap rate was flat YoY at 6.6%, fair value gains of S$131m were recognised on higher rent assumptions (mainly high-specs) and A-REIT City' s +37.5% in valuation. Net Asset Value was up 1.9% QoQ to S$2.02. Two new Asset Enhancement Initiatives valued at a collective S$62m were announced, as well as potential divestment of 1 Kallang Place (book value of S$10.5m) to existing tenant &ndash Flextronics.
 
Portfolio rent reversion of 14.8% was achieved for the 297,649 sqm (13% of portfolio Net Lettable Area) of renewals signed in FY14. AREIT' s FY15-16 weighted average passing rents remain 10-19% below spot rents, which imply that positive rental reversion will continue over the next two years, where circa 20% of income will expire per annum.
 
Portfolio occupancy fell 0.1%pt QoQ to 89.6%, while that of multi-tenanted buildings was flat at 83.6%. On a same store basis, they were -0.5%pt QoQ to 93.9% and +0.2%pt to 90.6%, respectively. This should improve as A-REIT City@Jinqiao and Nexus@one-north are now 27% and 83.5% pre-committed, vs. 25% and 75.6% previously. Aperia is also 40% committed/negotiation.
 
Current gearing of 30% implies debt headroom of S$1.2b for acquisitions before reaching 40%. Post refinancing of S$262m in 4QFY14, AREIT only has S$133m of loan due in May 14, which can be repaid using S$800m of undrawn revolving credit facilities. With 65% of total debt at fixed interest rate, distributable income would fall by only 1.1% with every 50bps rise in rate.
 
Earnings and target price revision
No changes in DPU estimates or target price.
 
Price catalyst
12-month price target: S$2.57 based on a DCF methodology.
Catalyst: Yield-accretive acquisitions and improved occupancy of MTB assets.
 
Action and recommendation
AREIT continues to be the dominant player within Singapore' s industrial property sector given its portfolio of 105 properties across various industrial asset classes and proven development expertise. With a total return of 17% and P/B of 1.18x (vs. mean of 1.36x), the stock is one of MER' s top SREIT picks.

Source: Macquarie Research   ...last:$2.31...

• 4QFY14 DPU up 16.0% YoY
• Positive revision of 14.8% achieved
• Aggregate leverage robust at 30.0%

Closing FY14 on positive note

Ascendas REIT (A-REIT) delivered a firm set of 4QFY14 results last evening. NPI grew by 12.2% YoY to S$112.3m, driven mainly by contribution from The Galen, Four Acres Singapore, Nexus@one-north and A-REIT City@Jinqiao. We note that no performance fee was payable for the quarter (versus S$7.0m fees registered in previous year), while a S$4.9m gain was clocked for the divestment of Block 5006 at Techplace II. In addition, A-REIT gained from distribution of income relating to its Ascendas Z-Link property in China. As a result, distributable amount and DPU increased by 23.9% and 16.0% YoY to S$85.3m and 3.55 S cents, respectively. This brings the full-year DPU to 14.24 S cents (+3.6%), largely in line with our projection of 14.13 S cents (consensus: 14.2 S cents).

Portfolio performance remained sturdy

We understand from management that there was a slowdown in leasing activity for the business/science park segment, while performance within the other property segments was generally stable. However, rents have been holding up well. Despite the impending increase in supply of industrial space in 2014, A-REIT expects the demand to remain healthy on the back of a tentative global recovery. As at 31 Mar, portfolio occupancy held steady at 89.6% (3Q: 89.7%). For FY14, positive rental reversion averaging 14.8% was also achieved. Going forward, A-REIT guided that positive reversion in the mid-to-high single digit is still anticipated, given that passing rents are below market rates.

Maintain BUY

A-REIT also announced two new asset enhancement initiatives (AEIs) this quarter, with the objective of maximising the plot ratio and improving the marketability of the properties. To date, total cost of committed AEIs amounted to S$106.5m. We also note that the acquisition of Kallang Ave development (~40% space committed) may happen soon as TOP is expected in 2QCY14. We roll our valuation to FY15, while tweaking our assumptions to factor in potentially higher operating costs. Our fair value now increases to S$2.45 from S$2.40 previously. Maintain BUY.

Source: OCBC Research     ...last:$2.34...