• 1QFY15 DPU up 2.5% YoY
• Rental reversion at 11.8%
• Embarking on two new AEIs

No surprises for 1QFY15 results

Ascendas REIT (A-REIT) reported a consistent set of 1QFY15 results last evening. NPI grew by 7.7% YoY to S$116.3m, while distributable income increased 2.8% to S$87.6m. The improved performance was mainly due to the recognition of rental income from Nexus@one-north, A-REIT City@Jinqiao and higher secured rentals within portfolio. DPU for the quarter stood at 3.64 S cents, up by a similar 2.5% YoY. This is in line with expectations, as the interim DPU formed 24.0% of both ours and consensus FY15 distribution forecasts. However, as A-REIT has changed its distribution frequency to semi-annual basis with effect from FY15, no payout will be made this quarter.

Portfolio operating metrics largely stable

For the quarter, we note that positive rental reversion averaging 11.8% (FY14: +14.8%) was achieved for leases renewed, as passing rents were still below the current market levels. Portfolio occupancy, on the other hand, eased from 89.6% in Mar to 88.1% as a result of the expiry of leases of two singleuser assets. We understand that one is 61.2% occupied while the other is vacant. Nonetheless, management guided that the latter is expected to be fully occupied by Aug, which should bring the overall occupancy above the 90% level. Notably, the percentage of A-REIT’s rental due for renewal has been reduced from 21.3% at the start of FY15 to 15.4%, thanks to A-REIT’s proactive marketing and negotiation efforts. Looking ahead, management expects reversions to stay positive at mid-to-high single-digit rates in FY15.

Maintain BUY

A-REIT announced two new asset enhancement initiatives (AEIs) at the Gemini-Aries and Science Hub with an aggregate estimated value of S$25.6m to maximise the plot ratio and improve the marketability of the assets. We note that the acquisition of Hyflux Innovation Centre and AEI at 5 Toh Guan Road East was completed in 1Q, and both properties are expected to start contributing to A-REIT’s income. We maintain BUY with an unchanged fair value of S$2.45 on A-REIT.

Source: OCBC Research - 24 Jul 2014