Ascendas Reit

DBS Group Research, April 22

A-REIT's Q4 2014 distribution per unit (DPU) of 3.55 cents (+5.3 per cent y-o-y) brings DPU for the full year to 14.2 cents, within our estimates. Q4 2014 topline and net property income came in 8 per cent and 12 per cent higher y-o-y at $156.5 million and $112.3 million, respectively.

This was largely due to contributions from an expanded portfolio (105 properties versus 102 a year ago), supported by organic growth of about 1.9 per cent y-o-y.

Rental reversions remained robust, with an uplift of about 14.8 per cent owing due to low passing rents. Occupancy rates remained stable at 89.6 per cent.

Distributable income was 22 per cent higher at $85.2 million (inclusive of tax income from prior periods/capital distribution) due to payment of performance fee of $6.9 million in Q4 2013 but nil in Q4 2014 and lower interest expenses.

NAV is higher by about 1.5 per cent at S$1.98. This was brought about by revaluation gains from A-Reit City @ Jinqiao and slight compression in portfolio cap rates to 6.57 per cent (versus 6.6 per cent in FY2013).

We expect A-Reit to continue reporting positive rental reversions from the renewal of about 21.6 per cent of its income in FY2015; however uplifts in rents are expected to be more moderate in the mid- to high-single-digit range. We believe this will more than compensate for expected hikes in operating costs (utilities/maintenance contracts) and nil vacancy refunds going forward from the tax authorities.

As a result, net property income margins are expected to remain flattish.

A-Reit's potential to grow inorganically is strong through an active pipeline of development and committed asset enhancement projects (AEI) worth $106.5 million (added new development projects - C&P Logistics Hub and Techlink and Techview); and proposed acquisition of Aperia in Q1 2015.

Management gave an update that Aperia property is on track to achieve TOP by Q1 2015 and is 40 per cent pre-committed at this point. The manager is expected to acquire the remaining stake from the vendor.

We estimate the trust will have sufficient debt-headroom to fund these initiatives and should see gearing settle at about 34 per cent.

A-Reit is expected to offer steady and resilient earnings. TP is raised to $2.47 as we roll forward our valuation base. Maintain "buy" for a total return of about 12 per cent.

BUY