Ascendas Reit

CIMB Research, April 16

Q4 FY13 was another positive quarter as A-Reit executed its growth strategy well, aided by a portfolio of quality assets and past investments. With steady DPU (distribution per unit) growth and a defensive balance sheet, it should benefit from the recent resurgence in demand for yields.

At 22 per cent and 98 per cent of our FY13 forecast, respectively, Q4 2013 and FY13 DPU broadly met our and consensus forecasts, with the slight variance resulting from a performance fee. We nudge up our DPUs and DDM-based (dividend discount model-based) target price as we factor in the results and a lower discount rate of 6.4 per cent. Maintain "outperform" on the catalysts of accretive AEI (asset enhancement initiatives) and developments.

A-Reit put up a steady performance in Q4 FY13. FY13 DPU was up 1.3 per cent y-o-y and would have risen 3.6 per cent if not for a one-off performance fee. Y-o-y growth came from an 11 per cent rise in NPI (net property income) as higher property taxes and other property expenses eroded part of a 14 per cent revenue increase. The portfolio remained healthy with weighted average reversions of 14.5 per cent in Q4, just shy of Q3's 18.5 per cent as portfolio occupancy remained a fairly healthy 94 per cent despite increased conversion of single-tenanted buildings to multi-tenanted ones. Current market rents remain 9 to 35 per cent higher than passing rents due for renewal in FY13/14, which, coupled with AEIs to upgrade older assets, should position A-Reit well for rental reversions.

Management continues to eye only quality assets for acquisition. Given elevated asset values, it believes that its competitive advantage lies in developments, aided by its fairly light balance sheet (30 per cent asset leverage after committed investments).

A-Reit is also warming up to overseas acquisitions in Iskandar and China, with increased inclination towards developments to ensure asset quality. It announced a new BTS (build-to-suit) development of DBS Asia Hub Phase 2 in Q4 and continues to make leasing headway on past investments.

With a quality asset portfolio, in-built growth as past investments come onstream and defensive capital management, A-Reit should benefit from the recent hunt for yield.

OUTPERFORM