• 3QFY17 DPU up 1.2% YoY
• Uptick in occupancy rates
• Positive rental reversions of 3% in Singapore

3QFY17 results in-line with our expectations

Ascendas REIT (A-REIT) reported its 3QFY17 results which met our expectations. Gross revenue increased 7.6% YoY to S$208.6m. This was driven by inorganic growth, but partially offset by loss of income from the divestment of three assets. DPU grew at a slower pace of 1.2% YoY to 3.993 S cents, as the higher revenue and absence of performance fees (3QFY16: S$8.4m) was diluted by an enlarged unit base arising largely from the issuance of 33.0m new units from the conversion of its Exchangeable Collateralised Securities (ECS).

As at 31 Dec 2016, S$237.75m of the S$300m ECS (maturity date of 1 Feb 2017) have been converted into units. Subsequently, since the beginning of this year, the remaining S$62.25m of ECS have been converted into units. On a 9MFY17 basis, AREIT’s gross revenue jumped 11.6% to S$621.7m and formed 73.7% of our full-year forecast.

DPU of 11.891 S cents represented a decline of 0.5% and made up 76.4% of our FY17 projection. The slight decline can be attributed to a one-off distribution of taxable income from operations in 2QFY16 amounting to S$6.5m (~0.271 cents/unit). Excluding this, A-REIT’s recurrent DPU for 9MFY17 would have increased 1.8%.

Positive rental reversions, higher occupancy

During the quarter, A-REIT achieved positive rental reversions of 3.0% for its Singapore portfolio. This was underpinned by its Business & Science Parks (+6.1%), Hi-Specs Industrial (+3.5%), Light Industrial (+1.8%) and Logistics & Distribution Centres (+1.1%) segments. Overall portfolio occupancy improved to 90.2% (+1.1 ppt QoQ), as Singapore saw new take ups at 40 Penjuru Lane and Pioneer Hub, while Australia registered a robust improvement due to higher demand at 62 Stradbroke Street (Brisbane).

Maintain BUY

In terms of financial position, A-REIT recorded a healthy reduction in its aggregate leverage from 34.2% (as at 30 Sep 2016) to 31.8%, although we expect this to increase once A-REIT completes the acquisition of 12, 14 and 16 Science Park Drive from its sponsor. We maintain BUY on A-REIT, but trim our fair value estimate from S$2.72 to S$2.68 as we factor in a higher risk-free rate of 2.7% (previously 2.4%).

Source: OCBC Research - 25 Jan 2017