Another Steady Quarter, Top Sector Pick

• Ascendas REIT (SGX:A17U) delivered better occupancies in 3Q20, underpinned by demand for its Singapore business park and logistics properties. Rental reversions were weaker q-o-q, but remain in line with guidance, and set for growth in FY20.
• We maintain our forecasts with drivers intact in this operational update.
• Fundamentals remain strong, supported by scale, concentrated Singapore business parks portfolio, and DPU upside from further overseas diversification. Valuations are demanding at 5.4% FY21 yield. Maintain BUY.

Better Occupancies in Singapore

• Ascendas REIT's portfolio occupancy improved q-o-q from 91.5% to 91.9% as of end-Sep 2020, as better occupancies in Singapore (from 87.9% to 88.8%), mainly due its business park (Cintech II) and logistics asset (at 40 Penjuru Lane) which offset lower occupancies in Australia (98.4% to 97.5%) with a non-renewal at 92 Sandstone Place in Brisbane.
• Government-related and logistics & supply chain management tenancies accounted for the largest 60.1% and 12.5% of new demand in 3Q20 by gross rental income.

Maintaining Full-year Rental Reversion Guidance

• Ascendas REIT's portfolio achieved a -2.3% rental reversion in 3Q20, vs +4.3% in 2Q20, as reversion was weaker in Singapore (at -2.8% from +4.0%), but stronger in the US (at +11.5% vs +16.2%). Its Singapore business & science parks performed better at +4.5% while the logistics & distribution centres reported a -16.2% reversion.
• Management kept its guidance to achieve a low single-digit positive reversion for 2020.
• We remain optimistic on its rental growth outlook, as its business parks remain under-rented and should deliver stronger (high single-digit) reversion into 4Q20.

Growth Levers From AEIs, Redevelopment, Deals

• Ascendas REIT announced the acquisitions of two properties under development in Australia:
  1. a logistics warehouse (Lot 7 Kiora Crescent in Sydney) for SGD22.4m at 6.2% NPI yield; and
  2. its fifth suburban office asset (MQX in Macquarie Park, Sydney) for SGD161.0m at 6.1% NPI yield, which should lift its Australian contribution to 15% of AUM.
• In Singapore, Grab’s build-to-suit project and the iQuest@IBP redevelopment are set to be completed in 4Q21 and 1Q23, while the AEI at Aperia was pushed back to 4Q20. Its low 34.9% leverage and SGD4.2b debt headroom supports further deals.

Source: Maybank Kim Eng Research - 27 Oct 2020