Ascendas Reit

CIMB RESEARCH on 17 Oct 2012

DESPITE dilution from a 7.5 per cent expansion of units after its placement, A-Reit's Q2 DPU rose 4.4 per cent y-o-y due to contributions from development projects and acquisitions. This is a commendable showing given newsflow on a slowing industrial and manufacturing environment.

Same-store portfolio occupancy inched up to 96.6 per cent from 96.4 per cent, thanks to pick-ups in light industrial and logistics as business parks and hi-tech industrial saw marginal q-o-q slippage. Rental reversions remained strong at 9.5-13.3 per cent and should remain positive, with market rents 16-35 per cent above rental due for renewal.

With only 5.8 per cent due for renewal for the rest of FY13, lease expiries will be more substantial in FY14 (25.5 per cent) and FY15 (21.9 per cent). Of these, 70-73 per cent will come from single-tenanted buildings. While this could provide rental upside due to the potential conversion of single-tenanted buildings to multi-tenanted ones, risks could come from downtime due to slower leasing of returned space on lease expiry.

A-Reit has been a choice hiding ground in the current chase for yields. But there are no compelling fundamental catalysts for further outperformance as elevated capital values hinder attractive acquisitions and there could be downtime from slower leasing when leases expire.

Maintain "neutral". Forward yields are among the highest for large-cap S-Reits but way below industrial property yields and the long-term average.

NEUTRAL