• Ascendas REIT's 2H20/ FY20 DPU of 7.418/ 14.688 cents were broadly within our expectations, at 49.3%/ 97.7% of our FY20F forecast.
• Stable operating performance, plans to buy European data centre portfolio remain.
• Reiterate ADD with a DDM-based target price of S$3.25.

Ascendas REIT's 2H20 Results Highlights

• Ascendas REIT (SGX:A17U) reported 2H20 gross revenue and NPI of S$528.2m/ S$388.2m, +12.5%/ +7.8% y-o-y, thanks to new contributions from the acquisition of 3 properties in Australia and USA in Sep/ Nov 2020 as well as a full 6 months of contributions from Galaxis in Singapore, partly offset by tenant rebates.
• Ascendas REIT's 2H20 distribution of S$0.07418/unit was 0.9% lower y-o-y due to an expansion in units base following an equity fund raising exercise in 4Q20.
• Ascendas REIT's FY20 distribution of S$0.14688/unit, down 6.1% y-o-y, was broadly within our expectations.

Stable Portfolio Occupancy, Positive Portfolio Rental Reversion

• Ascendas REIT's portfolio occupancy was relatively stable q-o-q at 91.7% (3Q: 91.9%) while rental reversions averaged +2.5% in 4Q (FY20: +3.8%), bolstered by positive double-digit reversions in the US and Australia.
• In Singapore, rental reversion in 4Q came in at 0.9%, dragged by negative reversions within the light industrial and flatted factories, logistics & distribution centres and business parks segments. New leasing demand in Singapore came from the bio-medical and logistics & supply chain management sectors.
• Management guided that it expects positive single-digit reversions for FY21F.
• Ascendas REIT has 16.3% and 19.9% of its portfolio leases expiring in FY21-22F. The bulk will come from Singapore business parks and logistics & distribution centres. Given the present competitive leasing environment, management indicated that it would adopt a tenant retention strategy. There is a small 7%/ 5.7%/ 5.5% of leases to be renewed in USA/ Australia/ UK, respectively.
• To refresh its properties, Ascendas REIT announced a new asset enhancement initiative at Changi Logistics Centre as well as the acquisition of a property in Crestmead, Brisbane for S$69.1m.

Robust Balance Sheet

• Ascendas REIT’s gearing declined h-o-h to 32.8% post its equity fund raising exercise in 4Q20. Interest cover remains healthy at 4.3x while average all-in debt cost declined h-o-h to 2.7% at end-Dec 2020.
• Management guided that plans to buy a portfolio of large-scale data centres located in Tier 1 data centre hubs across Europe are still undergoing due diligence and negotiations with vendors. The deal is expected to be DPU accretive when completed. Our current estimates have not factored in any contributions from this acquisition.

Reiterate ADD Rating

• We continue to like Ascendas REIT for its resilient and diversified portfolio and strong inorganic growth visibility.
• Upside risk: faster-than-expected global recovery.
• Downside risk: protracted downturn from the impact of COVID-19.
• S-REIT peer comparison table available in report attached below.

Source: CGS-CIMB Research - 2 Feb 2021