Price (at 06:08, 28 Aug 2013 GMT) S$2.17
Valuation S$ 2.60
Business as usual; operationally stable
Ascendas REIT presented at Day One of our Asean Conference in Singapore.
Cap rates are unlikely to rise post the increase in bond yields, according to management and indications from valuers. While interest rates play a role in determining cap rates, rent roll and achieved NPI are still the biggest components. Further, AREIT’s portfolio cap rates have been largely unchanged over the past 5 years, i.e. 6.8% during 2009 GFC, vs. 6.5% pre- GFC and existing 6.6%.
Acquisitions outlook. Going forward, acquisitions are likely to slow, in view of increased competition, high asking prices and introduction of shorter-tenure sites. The group is thinking of executing more brownfield (i.e. retrofitting) than greenfield projects. While more assets could be potentially divested, it is not easy as the prospective buyer must be an end-user/tenant.
Leasing updates. Nexus@one-north is expected to hit pre-commitment rate of 70-75% (56% in 1QFY3/14) by its 3Q13 completion. While demand largely came from relocation tenants, they are taking up bigger areas. Current asking rent of S$5.50-5.60 psf/mth compares favourably with S$4.80-5.20 psf previously. Completed in Jul 13, A-REIT City@Jinqiao has a 3% committed rate, with another 20% under negotiation. A rental guarantee of S$13.5m is provided. Although there is no pressure from tenants to decrease rents, AREIT is seeing more requests for shorter leases (i.e. 1-2 years) though these are higher in rates in order to compensate for the shorter timeframe.
Debt profile. AREIT’s all-in interest cost has improved to 3.09% (from 3.32% in 4QFY3/13). While floating rates are gradually edging up, they remain low, which explains management’s policy of maintaining 30% of total debts on floating rates, and 70% fixed. Interest cover also remains healthy at 5.7x.
Earnings and target price revision
No changes to DPU estimates and target price.
12-month price target: S$2.60 based on a DCF methodology.
Catalyst: Yield-accretive acquisitions and positive rent reversions.
Action and recommendation
AREIT continues to be the dominant player within Singapore’s industrial property sector given its portfolio of 103 properties across various industrial asset classes and proven development expertise. The 3-mth share price correction of 17% provides a good entry point for investors who like its defensive and resilient income streams.
Publish date: 27/08/13