• 1QFY16 DPU grew 5.5% YoY
• Average rental reversion of 6.6%
• No change to HOLD rating and FV

1QFY16 results met our expectations

Ascendas REIT (A-REIT) reported a decent set of 1QFY16 results which came in within our expectations. DPU grew 5.5% YoY to 3.84 S cents on the back of a 10.6% increase in gross revenue to S$180.5m. This formed 25.5% and 25.1% of our FY16 projections, respectively. The double-digit growth in topline was underpinned by contributions from the acquisition of IHC, Aperia and The Kendall, positive rental uplifts on renewals and higher occupancy at certain properties.

Reiterating its mid-single digit rental reversion guidance

During 1QFY16, A-REIT achieved positive rental reversions of 6.6% over its preceding contracted rental rates. The strongest increase came from its Business & Science Parks segment, which registered higher renewal rates of 8.3%. Management reiterated its guidance for its FY16 rental reversions to come in around the midsingle digit level, as the current market rental rate is still above the weighted average passing rents for most of its multi-tenanted space which is due for renewal.

Overall portfolio occupancy inched up 1.1 ppt QoQ to 88.8%. This was a gradual improvement over the past two quarters, but we believe management still has work to do to backfill the remaining vacancies given the large upcoming supply of industrial properties and muted economic outlook.

Maintain HOLD

In terms of financial position, A-REIT’s aggregate leverage ratio stood at 34.7%, as compared to 33.5% as at 31 Mar 2015. 69.5% of its borrowings have been hedged for an average term of 3.6 years. We make no changes to our forecasts, HOLD rating and S$2.49 fair value estimate.

A-REIT is currently trading at FY16F P/B ratio of 1.16x and distribution yield of 6.3%. The latter is approximately half a standard deviation below its 5-year average forward yield of 6.5%.

Source: OCBC Research - 23 Jul 2015