Fundamentals to Drive Re-rating

• Ascendas REIT’s share price have continued to outperform; yields have compressed in line with a lower interest rate regime. Fundamentals however remain positive given resilient DPUs, backed by its concentrated business park and high-specs exposure (at 60% of its Singapore AUM) and longer 4.2- year WALE.
• DPU growth drivers with:
  1. rental recovery backed by tapering supply,
  2. rising overseas contribution, and
  3. acquisition and AEI catalysts, look set to crystallise, and could drive a rerating of its shares.
• We fine-tuned estimates following further portfolio details. Ascendas REIT (SGX:A17U) remains our top S-REIT pick on fundamentals, scale and trading liquidity.
• Reiterate BUY and raise our DDM-based Target Price marginally to SGD3.30 (COE: 6.9%, LTG: 2.0%).

Stronger DPU Growth, More Resilient AUM Profile

• Ascendas REIT’s dividend yield has tightened further, down to 2013 levels, or 1SD below its 16-year average. We do not view valuations as excessive given DPUs are set to rise by a 4.0% FY19-22E CAGR. This is ahead of the actual 3.2% CAGR projected in FY13.
• Fundamentals have been strengthened by its more defensive AUM growth profile - in line with its overseas push since 2016, with 22% in freehold assets in Australia and the UK. Its WALE has risen to 4.2 years as of end-Mar 2019, from 3.6 years in 2016, while its business park and high-specs industrial contributions are expected to rise from 60.2% to 62.9% of its NPI by FY22.

Favourable Supply Outlook to Strengthen Recovery

• We see rents recovering new industrial supply, with government cut by 15.9% h-o-h to 10.0m sf for 2H19 on outlook.
• New supply is at the last peak in 1H13. Earlier supply-side pressures are thus 2019-21.
• Pre-commitment levels for park and high-specs high at 64-80% relative to 55% visibility.

Upside on Asset Rejuvenation, Incremental Deals

• Ascendas REIT’s sheet remains at 36.3% gearing and SGD0.8-1.8b in debt headroom to deals. We see upside to DPUs and growth potential from asset rejuvenation opportunities given its long 45-year weighted average land lease to expiry for its properties (excluding freehold properties).
• 95.3% of its portfolio has more than 30 years.

Source: Maybank Kim Eng Research - 2 Jul 2019