Ascendas REIT

OCBC on 21 Aug 2012

Ascendas REIT (A-REIT) is Singapore’s first listed business space and industrial REIT. It has a diversified portfolio of 101 properties in Singapore, and a business park property in China. For 1QFY13, we note that A-REIT turned in a commendable set of results, with DPU rising 10.3% YoY to 3.53 S cents despite an enlarged unit base post private placement. For FY13, A-REIT looks set to deliver another year of robust growth, supported by full-year contribution from its recent investments. However, we believe most of the positives have been reflected in its unit price, which has risen by 22.4% YTD. A-REIT is currently trading at 1.2x P/B and is just 1.3% shy of our fair value of S$2.27. Its FY13F DPU yield of 6.2% is also lower than the industrial REIT subsector average of 7.6%. As upside is likely limited, we downgrade A-REIT from Buy to HOLD on valuation grounds.

Well-diversified portfolio
Ascendas REIT (A-REIT) is Singapore’s first listed business space and industrial REIT. It has a diversified portfolio of 101 properties in Singapore, comprising business and science park properties, hi-tech industrial properties, light industrial properties, and logistics and distribution centres, as well as a business park property in China. As at 30 Jun, A-REIT’s total assets amounted to ~S$6.6b. These properties house a tenant base of over 1,100 international and local companies from a wide range of industries and activities. A-REIT is managed by Ascendas Funds Management (S) Limited, a wholly-owned subsidiary of Singapore-based Ascendas Group.

Commendable set of 1QFY13 results
For 1QFY13, we note that A-REIT turned in a commendable set of results, with DPU rising 10.3% YoY to 3.53 S cents despite an enlarged unit base post private placement. Operationally, A-REIT’s portfolio occupancy rate also improved to 94.6% from 94.3% in 4QFY12. For the rest of FY13, we understand that A-REIT has 9.1% of its revenue due for renewal. Given that the current market rents are 16-35% higher than the average passing rents for the areas due for renewal, we remain positive that A-REIT may continue to benefit from favourable rental reversions in the coming quarters.

Downgrade to HOLD on valuation grounds
In our view, A-REIT looks set to deliver another year of robust growth, supported by full-year contributions from its recent investments. However, we believe most of the positives have been reflected in its unit price, which has risen by 22.4% YTD. A-REIT is currently trading at 1.2x P/B and is just 1.3% shy of our fair value of S$2.27. Its FY13F DPU yield of 6.2% is also lower than the industrial REIT subsector average of 7.6%. As upside is likely limited, we downgrade A-REIT from Buy to HOLD on valuation grounds.