Monday, October 21, 2013

Ascendas REIT: Continued strong execution (OCBC)

Ascendas REIT:
Fair value S$2.45
add: 12m dividend forecast S$0.141
versus: Current price S$2.31

Continued strong execution
• 2QFY14 DPU up 2.0% YoY
• Positive revisions of 10.8% achieved
• Aggregate leverage robust at 29.7%

Ascendas REIT (A-REIT) delivered a better-than-expected set of 2QFY14 results, with DPU rising 2.0% to 3.60 S cents.
Leasing activity at A-REIT’s portfolio assets, we note, also remained healthy during the quarter. Looking ahead, A-REIT expects occupancy in certain properties to come under pressure due to non-renewal of tenants. However, given the healthy pre-commitment rates at A-REIT City@Jinqiao and Nexus@one-north, and the completion of enhancement works at two of its properties, we expect the portfolio occupancy to remain stable or even improve going forward. In addition, management highlighted that passing rents for leases due to expire are still below spot rents, and positive rental reversions are still expected, albeit at more modest pace. We make marginal upward revisions in our FY14 forecasts to reflect the better results, but we keep our S$2.45 fair value unchanged. Maintain BUY.

2QFY14 results above view
Ascendas REIT (A-REIT) delivered a firm set of 2QFY14 results that exceeded our expectations. NPI increased by 4.1% YoY to S$107.1m due to higher rental income from The Galen, finance lease interest income and positive rental reversions of 10.8%. Amount available for distribution grew by 9.3% to S$86.4m, further boosted by lower interest expenses and distribution of income support and net income in relation to its Beijing property, Ascendas Z-Link. As a result, DPU rose 2.0% to 3.60 S cents, notwithstanding an enlarged unit base following the placement of units in Mar. For 1HFY14, NPI was up 5.4% YoY to S$215.1m, while DPU was up 1.3% to 7.15 S cents. This forms 48.4% and 50.9% of our FY14 NPI and DPU forecasts, respectively.

Healthy operational performance
Leasing activity at A-REIT’s portfolio assets remained healthy, against a backdrop of softening industrial property market. Starting with 21.4% of its revenue due for renewal on 1 Apr, A-REIT has managed to halve the figure to just 10.5% by Sep end through proactive asset management. Portfolio occupancy fell to 90.1% from 93.6% registered a quarter ago, but we understand this was due to completion of A-REIT City@Jinqiao and Nexus@one-north during the quarter. Excluding these assets, occupancy rate would be up marginally to 93.9%.

Maintain BUY
Looking ahead, A-REIT expects occupancy in certain properties to come under pressure due to non-renewal of tenants. However, given that A-REIT City@Jinqiao and Nexus@one-north have already secured 25.3% (15 Jul: 3%) and 73.9% (5 Sep: 58.3%) pre-commitments respectively, and that enhancement works at two of its properties have been completed, we expect the portfolio occupancy to remain stable or even improve going forward. In addition, management highlighted that passing rents for leases due to expire are still below spot rents, and positive rental reversions are still expected, albeit at more modest pace. We are making marginal upward revisions in our FY14 forecasts to reflect the better results, but we keep our S$2.45 fair value unchanged. Maintain BUY.


Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date:17/10/13

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