Ascendas REIT

OCBC on 7 June 2012

Ascendas REIT’s (A-REIT) share price performance has clearly attested to its resilience, gaining 10.4% YTD as opposed to a 4.3% increase in the broader market. The strength, in our opinion, is mainly attributable to its diversified portfolio of 102 properties, healthy lease profile, strong sponsor and quality management. Outlook is also expected to remain sanguine, with recent acquisitions and developments likely to contribute positively to its performance. We also note that A-REIT’s financial position had been fortified by the recent private placement and divestment of Goldin Logistics Hub. This is likely to provide it with greater financial ability to capitalize on growth opportunities, as well as secure borrowings at potentially more competitive terms to fund its committed investments. We maintain our BUY rating with an adjusted fair value of S$2.22 (S$2.31 previously) on A-REIT, after factoring in the developments.

Resilience proven by unit price performance
Ascendas REIT’s (A-REIT) unit price performance has clearly attested to its resilience, gaining 10.4% YTD as opposed to a 4.3% increase in the broader market. The strength, in our opinion, is mainly attributable to its diversified portfolio of 102 properties, healthy lease profile (high occupancy of 96.4% and WALE of 4 years), strong sponsor and quality management. Outlook is also expected to remain sanguine, with recent acquisitions and developments likely to contribute positively to its performance. Despite market concerns that the industrial rents may ease slightly in 2012, we still see potential for A-REIT to register positive rental reversions, as the passing rents for the area due for renewal are currently 16-32% below the spot market rates. This should provide support to our FY13F DPU yield of 6.9%, which is attractive in our view.

Enhanced financials with proactive capital management
A-REIT has also been very proactive in its capital management. Riding on its sturdy share price performance, the REIT strategically issued out 150m new units at S$1.99 apiece (6.0% premium to NAV) via a private placement in May. All the net proceeds, amounting to S$296.9m, had since been used to repay its outstanding borrowings, which effectively pared down its aggregate leverage from 36.6% as at 31 Mar to 32.1%. In addition, we also note that A-REIT has announced the divestment of Goldin Logistics Hub at 6 Pioneer Walk for S$32.1m, representing a respectable 36.2% premium over its latest disclosed valuation of S$23.5m in Mar 2011. As a result, A-REIT’s fortified financial position will likely provide it with greater financial ability to capitalize on growth opportunities, as well as secure borrowings at potentially more competitive terms to fund its committed investments.

Maintain BUY
We now factor in an enlarged unit base following the placement and an expected loss in income from the divestment, partially balanced out by lower interest expenses from lower borrowings. Our fair value is now adjusted to S$2.22 in effect (S$2.31 previously). Maintain BUY.