• 4QFY16 DPU slipped 8.1% YoY
• Positive FY16 rental reversions of 7.0%
• Write-down of Australian portfolio

4QFY16 results within our expectations

Ascendas REIT (A-REIT) reported its 4QFY16 results which came in within our expectations. Gross revenue jumped 17.4% YoY to S$204.0m and this was driven by organic growth from higher occupancy at certain properties, coupled with contribution from the acquisitions of the Australian Portfolio, the Kendall and ONE@Changi City. However, DPU fell 8.1% YoY to 3.41 S cents due largely to higher performance fees of S$9.0m (4QFY15: nil) and an enlarged unit base.

On a full-year basis, AREIT’s FY16 gross revenue rose 13.0% to S$761.0m and formed 102.9% of our forecast. DPU of 15.357 S cents represented growth of 5.2% and accounted for 101.0% of projection.

Rental reversions to moderate

During the quarter, A-REIT delivered positive rental reversions of 5.1% in Singapore, and this resulted in a 7.0% uplift in renewal rates for FY16. Looking ahead, management guided that it expects rental reversion for FY17 to come in flat to the low-single digit level, as the current market rental is slightly above the weighted average passing rental for most of its multitenant space which is due for renewal.

Overall portfolio occupancy stood at 87.6%, as at 31 Mar 2016, a slight decline of 1.6 ppt QoQ. Lower occupancy was registered in China as a result of the completion of A-REIT’s Jiashan Logistics Centre in Mar 2016. While the property is currently unoccupied, management is in talks with prospective tenants for approximately 34% of the space.

Roll forward valuations and maintain BUY

Following a revaluation exercise, A-REIT suffered a net revaluation loss of S$6.9m, with the main drag coming from a write-down of S$117m for its Australian assets. This was in turn caused by capitalised acquisition costs and a premium of 6.6% paid above the open market value of the Australian portfolio when A-REIT acquired it in 2015.

We fine-tune our assumptions after factoring in A-REIT’s full-year results in our model, resulting in a slight increase of 0.5% for our FY17 DPU forecast. Rolling forward our valuations, we derive a higher fair value estimate of S$2.58 (previously S$2.50).

Maintain BUY on A-REIT, supported by potential total returns of 14%.

Source: OCBC Research - 6 May 2016