• Ascendas REIT’s 3QFY3/19 DPU of 3.988 Scts was in line with our and consensus forecasts, mainly driven by new acquisitions in Australia and UK.
• Ascendas REIT secured a S$181.2m project to build Grab’s new Singapore HQ with a stabilised NPI yield of 6.4% and built-in annual rental escalations.
• Maintain ADD, with a Target Price of S$2.83.

3QFY3/19 Results in Line

• ASCENDAS REAL ESTATE INV TRUST (SGX:A17U, Ascendas REIT)'s 3QFY3/19 DPU of 3.998 Scts (+0.7% y-o-y) was in line at 24%/25% of our/Bloomberg consensus full-year forecasts.
• The y-o-y improvement was largely due to contribution from new acquisitions in Australia and two UK portfolios. This was offset by the equity fund raising for its 2nd UK portfolio in Sep 2018 and non-renewals in certain properties in Singapore.
• Ascendas REIT's 9MFY19 DPU of 11.887 Scts (+1.6% y-o-y) was at 72% of our forecast.

Occupancy Improved With Positive Rental Reversions

• Ascendas REIT’s portfolio occupancy increased to 91.3% in 3QFY19 (90.6% in 2QFY19), driven by an increase in occupancy in Singapore from 87.1% to 87.3%. This was mainly due to new take ups at 20 Tuas Ave 1, FoodAxis@Senoko, and 9 Changi South St 3.
• Portfolio rental reversion was more positive in 3QFY19 at +3.2% (2.3% in 2QFY19). The remaining lease expiries in FY19 and FY20 represent 1.6%/18.6% of its gross rental income.

Building Grab’s New Singapore HQ for S$181m

• Ascendas REIT secured a S$181.2m development project for Grab’s headquarters in Singapore. The 42,310 sq m property, located in one-north, will be fully leased by Grab to house all its Singapore-based employees; it will have an NPI yield of 6.4%.
• The lease will run for 11 years with a renewal option of 5 years, and have built-in rental annual rental escalations. This will be Ascendas REIT’s 17th development project and 3rd business park asset in one-north.
• Post-completion in 4QCY20, Ascendas REIT’s business park segment will comprise 34% of its portfolio.

Balance Sheet Remains Robust

• Aggregate leverage increased to 36.7% in 3QFY19 (33.2% in 2QFY19) due to the drawdown of debt for the 2nd UK portfolio acquisition. Average interest cost held steady at 3.0%, with 75.6% on fixed rates, and average debt maturity remained stable at 3.6 years.

Maintain ADD With a Target Price of S$2.83

• We roll forward our DDM-based valuations, and amend our rental growth and occupancy assumptions to arrive at a revised Target Price of S$2.83.
• We like Ascendas REIT due to its strong parentage and dominant market position in Singapore.
• We think re-rating catalysts could come in the form of new asset enhancement initiatives; we have not factored these into our valuations yet.
• Downside risks to our call include impact from escalating US-China trade tensions, and a slower recovery of industrial rents.

Source: CGS-CIMB Research - 30 Jan 2019