Ascendas REIT

Kim Eng on 18 Jul 2012

1QFY12 results inline. 1Q12 revenue at SGD142m, was 28% of ours and 26% of consensus estimate. 1Q12 DPU at 3.53 SG-cts (up 0.9% QoQ and 10.3% YoY) was 26% of our forecast and consensus estimate. Aggregate leverage inched down to 32.7% from 36.6% last quarter. After funding of committed capital expenditure, aggregate leverage is expected to be ~35%. All-in-financing costs for 1Q12 averaged 3.17% with an average term of debt of 4.4 years.

Stable portfolio continues to deliver. Occupancy rate for the portfolio and multi-tenanted buildings (MTB) improved to 94.6% and 90.1% respectively from 94.3% and 89.5% a quarter ago. 1Q12 weighted average lease to expiry was 4 years, with 10.5% NLA (127,543 sqm) renewed and signed for A-REIT’s MTB.  Positive rental reversion on renewal range between 10%-21% throughout all segments of the portfolio. NPI margin improved from 70.8% last quarter to 71.2%. Adjustments to our estimates. We raise our FY12-14F revenue and DPU by 1.1%-3.6% and 1.2%-4.8% respectively in view of better-thanexpected rental reversions from renewals. The stock has risen 8.5% since our last report.

Maintain BUY. We continue to like A-REIT for its stable DPU yield, healthy lease expiry and debt maturity profile, underpinned by a diverse portfolio (business/science parks, hi-tech industrials, flatted factories, light industrials, logistics and distribution centres and warehouse retail). In addition, only 20.2% of A-REIT’s NLA is used for conventional manufacturing, which is a plus given that the per annum net demand for factory space has been modest compared to warehouses and business parks. Based on our forecasts, business/ cience parks currently constitute 40% of our FY12F GAV, followed by hi-tech (23%), logistics and distribution (19%), light industrial (15%) and warehouse retail facilities (3%). Potential acquisitions overseas could provide further upside for DPU growth. Importantly, A-REIT is also less vulnerable to asset erosion, with its defensive properties located primarily in Singapore. The stock currently trades at 6.4% FY12F yield and 1.1x P/BV. Reiterate BUY with a DDM-derived target price of SGD2.34 (prev. SGD2.23), boosted by DPU uplift.