Monday 27 April 2015

Ascendas REIT

OCBC on 24 Apr 2015

Ascendas REIT (A-REIT) showcased its resilience by reporting a 4.5% YoY growth for its 4QFY15 DPU to 3.71 S cents. This came on the back of a 11.0% increase in gross revenue to S$173.8m. Results were in-line with our expectations. During the quarter, A-REIT delivered a 4.4% increase for its renewal rates. Looking ahead, management has guided for mid-single digit rental reversion for FY16, although gap is narrowing between A-REIT’s passing rents and current market rents. A-REIT ended the financial year with overall portfolio occupancy of 87.7% (versus 86.8% as at 31 Dec 2014). We fine-tune our assumptions and as we roll forward our valuations, our DDM-derived fair value estimate on A-REIT is boosted from S$2.43 to S$2.49. However, given A-REIT’s strong share price performance YTD, we see limited total potential returns of 2% at this juncture. Hence, we maintain HOLD on A-REIT, which is currently trading at FY15F 1.24x P/B ratio with a distribution yield of 5.9%.

4QFY15 results came in within our expectations
Ascendas REIT (A-REIT) showcased its resilience by reporting a 4.5% YoY growth for its 4QFY15 DPU to 3.71 S cents. This came on the back of a 11.0% increase in gross revenue to S$173.8m. Results were in-line with our expectations and were underpinned by contribution from new acquisitions as well as higher occupancy and positive rental uplifts on renewals at certain properties. For FY15, A-REIT’s gross revenue jumped 9.8% to S$673.5m, or 1.6% above our forecast. DPU of 14.6 S cents represented a slight growth of 2.5%, and was 1.1% ahead of our estimate. 

Still expecting positive rental reversions
During the quarter, A-REIT delivered a 4.4% increase for its renewal rates, which was achieved by broad-based growth across all segments. Nevertheless, we note that this was a moderation from the 8.3% positive rental reversion figure for all leases renewed in FY15. Looking ahead, management has guided for mid-single digit rental reversion for FY16, as the weighted average passing rent for most of A-REIT’s multi-tenanted space which are due for renewal in FY16 are still below current market rents, although the gap is narrowing. A-REIT ended the financial year with overall portfolio occupancy of 87.7% (versus 86.8% as at 31 Dec 2014). Although A-REIT has ten single-tenanted building (SLB) leases expiring in FY16, as compared to eight during FY15, the combined space up for renewal for the FY16 leases is 44% smaller than those of FY15. Moreover, management believes most of these SLB leases would be renewed, as compared to being converted into multi-tenanted buildings. Hence, there would be less pressure on A-REIT’s occupancy rates. 

Maintain HOLD
We fine-tune our assumptions and as we roll forward our valuations, our DDM-derived fair value estimate on A-REIT is boosted from S$2.43 to S$2.49. However, given A-REIT’s strong share price performance YTD, we see limited total potential returns of 2% at this juncture. Hence, we maintain HOLD on A-REIT, which is currently trading at FY15F 1.24x P/B ratio with a distribution yield of 5.9%.

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