• 2QFY15 DPU up 1.7% YoY
• Aperia situation to improve
• FV and BUY rating unchanged

2QFY15 results on track

Ascendas REIT (A-REIT) reported a resilient set of 2QFY15 results which met ours and the street’s expectations. DPU grew 1.7% YoY to 3.66 S cents on the back of a 8.6% increase in gross revenue to S$164.8m. The latter was driven by new acquisitions and positive rental reversions of 6.3%, although this was softer than the 11.8% reversion achieved in 1QFY15. Management maintained its guidance of a mid-to-high single digit positive rental reversion for FY15, with 8% of its property income due for renewal for the remainder of the financial year. For 1HFY15, A-REIT’s revenue and DPU rose 8.4% and 2.1% to S$328.0m and 7.30 S cents, and this met 49.5% and 49.4% of our FY15 projections, respectively. As A-REIT has switched to a semi-annual distribution, the entire 7.30 S cents DPU would be paid out on 28 Nov.

Occupancy may trough soon

A-REIT’s overall occupancy slipped 2.5 ppt QoQ to 85.6%. This was attributed largely to two properties: i) conversion of C&P Logistics Hub from a single-tenanted building (STB) to a multi-tenanted building (MTB) in July this year (occupancy: 66.4%), and ii) Aperia, which was acquired in Aug 2014 (occupancy: 27.7%). Nevertheless, we note that occupancy for MTBs (same store basis) was fairly stable at 86.0% (1QFY15: 86.5%). AREIT remains confident on the performance of Aperia going forward, and believes it will be able to bring it to a stabilised state within one year of acquisition. Leases signed recently (S$5 psf pm) are already higher than the initial stages (S$4 psf pm). In addition, A-REIT has been going through a transitional period of converting its STBs to MTBs and hopes to improve its occupancy rates after the cycle is completed.

Maintain BUY

We retain our forecasts as results were within expectations. Given our unchanged S$2.45 fair value estimate and forecasted 6.4% distribution yield for FY15, we reiterate BUY on A-REIT, with potential total returns of 13%.%.

Source: OCBC Research - 24 Oct 2014