• Ascendas REIT - one of the cheapest large-cap industrial S-REITs with attractive pipeline for acquisitions.
• Assistance to tenants to be limited to a manageable 2% of top line.
• Attractive relative valuation vs other large-cap industrial S-REITs.
• BUY maintained, Target Price S$3.45.

Assistance to Tenants at < S$20m; 2% of Top Line

Minimal impact from rent waivers.

• Ascendas REIT (SGX:A17U), in response to questions raised by shareholders at its recent AGM, estimated that rent waivers provided to tenants amounted to less than S$20m. This is in addition to the property tax rebates and cash grants that the trust will fully pass on to eligible tenants.

Manageable exposure to SMEs.

• SMEs make up < 20% of Ascendas REIT's Singapore portfolio by gross rental income. About 12% of these tenants are the F&B and retail SMEs while the remaining 88% are industrial SMEs. Among its exposures in Singapore, Australia, US and UK, none of the tenants has pre-terminated due to the COVID-19 outbreak.
• While distributions are unlikely to be impacted in the near term, Ascendas REIT mentioned that it does not see the need to hold back dividends, for now.

Our Thoughts

A “COVID-19 resilient stock”.

• In our view, a further shot of confidence is that the industrial segment is still seen as the subsector that will emerge the strongest post COVID-19. While assistance rendered to tenants is likely, the impact across the sector remains manageable at 3-5% of revenues and we do not see significant downside risk to our earnings.
• In fact, the future for the subsector remains bright, catalysed by possible acceleration of broad economic trends (i.e. adoption of e-commerce driving demand for warehouses, growth of new economy sectors, driving demand for high-specification premises and business parks in the longer term). These should drive demand for more higher-specification industrial properties in the longer term.

Cheapest large-cap REIT with attractive pipeline.

• While Ascendas REIT's share price remains strong, it has been lagging behind its larger-cap industrial peers. On a relative basis, Ascendas REIT is trading at a forward prospective yield of 5% and P/NAV of 1.4x.
• With an attractive pipeline of stabilised properties (mainly high-quality business parks in Singapore) for acquisition from Sponsor, CapitaLand (SGX:C31), we believe that the market has not accorded the right premium for the largest-cap REIT in Singapore which remains in the virtuous cycle of accretive growth.

Source: DBS Research - 29 Jun 2020