• Ascendas REIT achieved positive rental reversion of 2.9% in 4Q21 driven by Singapore, the UK and US. Portfolio occupancy improved 1.5ppt q-o-q to 93.2% with broad-based advances from Singapore, Australia and the US. Management plans to scale up in Australia, the UK/Europe and the US through acquisitions.
• Locally, Ascendas REIT sees opportunities to convert light industrial buildings into data centres.
• Ascendas REIT provides resilient 2022 distribution yield of 5.9%. Maintain BUY.

Ascendas REIT (AREIT)'s 2H21 Results

• Ascendas REIT (SGX:A17U) reported DPU of S$0.07598 for 2H21, in line with our expectations. It made a voluntary one-off waiver of its performance fees caused by rental rebates of S$18.5m recognised in 2020, which enhanced 2021 DPU by 0.2 cents.
• Positive rental reversion driven by Singapore, the UK and US. Ascendas REIT achieved positive rental reversion of 2.9% in 4Q21 (1Q21: 3%, 2Q21: 8.9% and 4Q21: 3.7%). In Singapore, business space, light industrial & flatted factories and logistics & distribution centres provided healthy reversions of +2.2%, +3.5% and +3.1% respectively. New demand was derived mainly from the IT, biomedical, chemicals and engineering sectors. Business parks in the US registered strong reversions of +18.9% driven by San Diego and Raleigh. Data centres in the UK/Europe registered positive rental reversion of 6.2%. Management maintains guidance of positive low single-digit rental reversions for 2022.
• Broad-based improvement in occupancies. Ascendas REIT's portfolio occupancy improved by 1.5ppt q-o-q to 93.2% in 4Q21.
  • In Singapore, occupancy improved by 1.7ppt q-o-q to 90.2% due to higher occupancy at Xilin Districentre (improved from 68.6% to 100%) and Nucleos (improved from 80.9% to 98.4%). Curtin University has relocated to be the anchor tenant at The Alpha at Science Park 2 (improved from 47.1% to 74%).
  • In Australia, occupancy improved 1.7ppt q-o-q to 99.2%. Occupancy for the US improved 3.1ppt q-o-q to 94.5% as occupancy for the 11 last-mile logistics properties in Kansas City improved from 92.6% to 100% shortly after the completion of the acquisition in Nov 21.

Asset Recycling Sharpens Focus on the New Economy Sectors

• Ascendas REIT deployed S$1,930.8m for healthy at 3.5 years. 79.4% of its borrowings are hedged to fixed rates. Ascendas REIT has debt headroom of S$4.8b based on regulatory limit on aggregate leverage of 50%.

Plotting Steady Growth

• Ascendas REIT's management targets acquisitions worth S$1b in 2022 primarily by 5.0% post-transaction costs. The acquisition is estimated to improve pro forma 2020 DPU by 0.11 cents, representing accretion of 0.7%.

Maintain BUY Call on Ascendas REIT

• We maintain our 2022 DPU forecast for Ascendas REIT at DDM (cost of equity: 6.0%, terminal growth: 1.8%).

• Catalysts:
  • Resiliency and growth from the business parks, logistics and data centre segments.
  • Contributions from development projects and asset enhancement initiatives.

Source: UOB Kay Hian Research - 9 Feb 2022