• 4QFY14 DPU up 16.0% YoY
• Positive revision of 14.8% achieved
• Aggregate leverage robust at 30.0%

Closing FY14 on positive note

Ascendas REIT (A-REIT) delivered a firm set of 4QFY14 results last evening. NPI grew by 12.2% YoY to S$112.3m, driven mainly by contribution from The Galen, Four Acres Singapore, Nexus@one-north and A-REIT City@Jinqiao. We note that no performance fee was payable for the quarter (versus S$7.0m fees registered in previous year), while a S$4.9m gain was clocked for the divestment of Block 5006 at Techplace II. In addition, A-REIT gained from distribution of income relating to its Ascendas Z-Link property in China. As a result, distributable amount and DPU increased by 23.9% and 16.0% YoY to S$85.3m and 3.55 S cents, respectively. This brings the full-year DPU to 14.24 S cents (+3.6%), largely in line with our projection of 14.13 S cents (consensus: 14.2 S cents).

Portfolio performance remained sturdy

We understand from management that there was a slowdown in leasing activity for the business/science park segment, while performance within the other property segments was generally stable. However, rents have been holding up well. Despite the impending increase in supply of industrial space in 2014, A-REIT expects the demand to remain healthy on the back of a tentative global recovery. As at 31 Mar, portfolio occupancy held steady at 89.6% (3Q: 89.7%). For FY14, positive rental reversion averaging 14.8% was also achieved. Going forward, A-REIT guided that positive reversion in the mid-to-high single digit is still anticipated, given that passing rents are below market rates.

Maintain BUY

A-REIT also announced two new asset enhancement initiatives (AEIs) this quarter, with the objective of maximising the plot ratio and improving the marketability of the properties. To date, total cost of committed AEIs amounted to S$106.5m. We also note that the acquisition of Kallang Ave development (~40% space committed) may happen soon as TOP is expected in 2QCY14. We roll our valuation to FY15, while tweaking our assumptions to factor in potentially higher operating costs. Our fair value now increases to S$2.45 from S$2.40 previously. Maintain BUY.

Source: OCBC Research - 22 Apr 2014