Ascendas Reit

Maybank Kim Eng Research, Jan 20

ASCENDAS Reit (A-Reit's) nine- month revenue grew 6 per cent year on year to S$154 million, constituting 76 per cent of our and 74 per cent of consensus estimates. The rise was attributable to rental income earned from The Galen, which was acquired at the end of FY3/13, rental income from Nexus @ one-north, A-Reit City @ Jinqiao and finance lease interest income received from a tenant.

Nine-month distribution per unit stayed flattish at 10.69 cents, forming 73 per cent of our and 75 per cent of market forecasts. A-Reit achieved positive rental reversion in Q3 FY3/14, averaging 9.7 per cent across all segments of the portfolio.

A-Reit also announced a S$11.1 million asset enhancement work, The Alpha, with expected completion by March 2014.

We remain negative on industrial Reits. We see industrial Reits facing major downside risks from the impending hike in interest rates and possible recalibration of over- inflated property prices - both of which can drag NAV down.

Other challenges include a fragile global macroeconomic outlook and ample supply in the pipeline. Iskandar Malaysia will also pose competition in the medium term, especially for lower value-added industrial activities within Singapore.

We maintain "hold" with an unchanged dividend discount model-derived target price of S$2.30.

HOLD