Still Our Top Pick

• Ascendas REIT (SGX:A17U)’s 2H20 DPU fell 0.9% y-o-y, as its units rose 10.7% y-o-y following the Nov 2019 rights issue, and placement and preferential offering in Nov-Dec 2020. Its S$1.0b of portfolio deals in FY20 helped deliver stable portfolio occupancy of 91.7%, and cushion revenue and NPI growth against rent-relief support, mostly in Singapore.
• Management has stayed with the rental reversion guidance into FY21.
• Ascendas REIT's fundamentals remain strong, backed by its scale, rising DPU visibility, growth levers from a strong balance sheet, and further overseas diversification. Maintain BUY, with DDM-based S$4.00 target price (COE: 5.8%, LTG: 2.0%).

Stable Occupancy, Slight Dip in Singapore

• Ascendas REIT's revenue and NPI rose 12.5% y-o-y and 7.8% y-o-y in 2H20, with contribution from the portfolio of 28 US and 2 Singapore business park properties acquired in Dec 2019, a suburban office in Australia (254 Wellington Road) and two office properties in San Francisco from Nov 2020.
• Tenants from the biomedical, energy and lifestyle trade segments accounted for the highest proportion of new demand in 4Q20 by gross rental income at ~31%, 21% and 16% respectively.

Guiding for Low Single-digit Rental Reversion for 2021

• Ascendas REIT's portfolio delivered a +2.5% rental reversion in 4Q20 (vs -2.3% in 3Q20), and achieved a +3.8% reversion for FY20, in line with guidance. Reversions in 4Q20 were weaker in Singapore except for its integrated development, amenities and retail (+11.5%), and stronger in the US at +18.8% (vs -11.5% in 3Q20).
• Management expects leasing volumes to soften amid macro uncertainties. Incentives should rise as a result in order to maintain retention rates at 60-70%.
• Management is guiding for a low single-digit positive reversion for 2021. We maintain an optimistic outlook for its rental growth, which is likely to be led by its business parks, suburban office and logistics space (73% of its AUM).

Growth Levers From AEIs, Redevelopment, Deals

• Ascendas REIT's AUM rose 1.0% y-o-y to S$12.8b from S$973.2m in acquisitions, with S$535.2m to be completed within the next two years. Its Australian portfolio saw cap rates compress by 26bps to 5.62%.
• Ascendas REIT's low 32.8% leverage (vs 36.1% at 1H20) and S$5.0b debt headroom (at 50% limit) supports further deals.
• While the European data centre deal remains on track (at +2-2.5% DPU accretion), we believe Ascendas REIT could revisit its sponsor’s S$1b Singapore pipeline at the Science Park in the near to medium term.

Source: Maybank Kim Eng Research - 3 Feb 2021