• 4QFY18 DPU +1.5% YoY
• FY18 portfolio rental reversion of 0.7%
• Studying new markets  

4QFY18 Results Within Our Expectations

Ascendas REIT (A-REIT) reported its 4QFY18 which met our expectations. Gross revenue rose 3.3% YoY to S$215.7m while DPU grew 1.5% to 3.91 S cents. For the full-year, A-REIT’s gross revenue increased 3.8% to S$862.1m and formed 97.5% of our FY18 forecast. DPU of 15.99 S cents represented growth of 1.6% and constituted 100.4% of our projection. FY18 DPU was boosted by a one-off distribution amounting to S$5.9m (0.20 S cents per unit). Excluding this, DPU would have grown 0.3% instead.

Guiding for Slight Improvement in Rental Reversions

A-REIT registered negative rental reversions of 6.8% in Singapore for 4QFY18, due largely to the High-Specifications Industrial segment (-18.8%). This was attributed primarily to a single lease for a showroom. Excluding this, rental reversion for this segment would be 1.3%. Overall portfolio rental reversion was 0.7% for FY18 (Singapore: 0.5%; Australia: 1.8%). Looking ahead, A-REIT has guided for slight improvement in rental reversions for FY19. In terms of valuation, its portfolio cap rates were largely stable, with a mild compression of 5 bps to 6.24%.

Europe and U.S.  Potential New Markets For Inorganic Growth

New CEO Mr. William Tay shared his vision of ‘value management’, ‘value creation’ and ‘value adding’ during the analyst briefing. This entails improving A-REIT’s franchise value, identifying assets for redevelopment and incorporating smart technologies to make its assets futureready and actively looking at new markets. Europe and the U.S. are the most probable destinations for inorganic growth beyond Singapore and Australia, with suburban offices and business parks the likely asset classes for acquisitions.

Given the importance of scalability, we believe management would aim to acquire a platform in these new markets, similar to its approach when it penetrated the Australian market previously. We incorporate A-REIT’s fullyear results in our model, and fine-tune our finance costs and tax assumptions, while also factoring in its proposed divestment of its 30 Old Toh Tuck Road property and acquisition of a logistics property in Melbourne (6.5% post-cost NPI yield).

Our fair value estimate increases slightly from S$2.69 to S$2.71.

Source: OCBC Research - 24 Apr 2018