ASCENDAS Reit (Areit) posted a DPU (distribution per unit) of 3.55 cents (+0.6 per cent y-o-y) in Q1 FY14, in line with our estimate (+0.2 per cent deviation). Revenue and NPI (net profit interest) came in at S$150.9 million (+6.3 per cent y-o-y) and S$108.0 million (+6.8 per cent y-o-y), respectively. The higher revenue was mainly attributed to new contributions from The Galen and positive rental reversions on renewals.
Areit's Q1 FY14 results were largely in line with our forecasts, with a positive rental reversion averaging about 9.6 per cent across all segments of its portfolio. The occupancy rates for both its portfolio and multi-tenanted buildings shifted to 94.3 per cent and 92.0 per cent vs 94.9 per cent and 90.4 per cent, respectively from a year ago. This was a result of the completion of several asset enhancement initiatives over the year, which resulted in an increase in total available net lettable area.
In Q1 FY14, management continued to identify yield-accretive investment opportunities and among the activities proposed, three new asset enhancement works were scheduled. These projects, at Techquest, LogisTech and Corporation Place, amounted to S$25.4 million and are slated for completion by Q3 2014. Meanwhile, the Reit had earlier this month completed the acquisition of a business park property in Shanghai that has a guaranteed yield of 10.8 per cent, while the divestment of 6 Pioneer Walk was completed back in June with a gain of S$7.2 million.
In Q1 FY14, the group's aggregate leverage crept up marginally to 28.6 per cent (+0.3 per cent q-o-q). Going forward, post full funding of its committed investments, Areit's gearing is expected to stabilise at a healthy 30.5 per cent. This allows the trust to have ample debt headroom of S$1.9 billion (translating to a 45 per cent gearing) for future investment purposes.
As 68.1 per cent of its total debt is tied to a fixed interest rate for an average term of four years, every 50 bps increase in the interest rate will result in a change of a mere 0.13 cent, or about 1.0 per cent, in distributable income.
As the outlook for its earnings and portfolio occupancy rates remain stable and given that its share price has recently undergone a correction, we continue to see value in Areit. Maintain BUY with a slightly higher dividend discount model-based (cost of equity: 8.0 per cent, targeted growth rate: 1.0 per cent) TP of S$2.48.
BUY
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