• Ascendas REIT (SGX:A17U) achieved DPU growth of 5.4% y-o-y and 3.3% h-o-h in 1H21, with stronger portfolio rental reversions in 2Q21, which were under-pinned by its under-rented US business park assets, and growth from its Singapore portfolio. Its occupancy improved in Singapore and Australia, with rental recovery into FY21 well underway.
• We have kept our forecasts intact. Ascendas REIT's fundamentals remain strong, backed by scale, rising DPU visibility, upside from acquisitions and/or redevelopments, and further overseas diversification.
• Ascendas REIT's valuations are undemanding at 5.1% FY21 yield. Maintain BUY, with S$3.65 DDM-based target price (COE: 6.2%, LTG: 2.0%).

Ascendas REIT Reported Better Occupancies in Singapore, Australia

• Ascendas REIT's portfolio occupancy improved q-o-q to 91.3% (from 90.6% in 1Q21) as better occupancies in Singapore (86.9% to 87.9%) and Australia (94.9% to 98.4%) offset a dip in the UK/ Europe (from 98.6% to 97.5%), due to transitory downtime. Tenants in the biomedical, IT/ data centres, and lifestyle/ retail/ consumer trade segments accounted for the highest proportion of new demand by gross rental income in 1H21, at ~34%, ~20% and ~9% respectively.
• Expansion activity in Singapore saw a single tenant fully lease a light industrial property (at 31 Joo Koon Circle) on a 20-year term.

Rental Reversion Strong at +8.9%

• Ascendas REIT's portfolio delivered a +8.9% rental US properties being under-rented by 10-30%, we maintain an optimistic outlook for its rental growth, with reversions tracking to its low single-digit positive guidance for 2021.

An AUM Boost, Redevelopment Upside

• Ascendas REIT's AUM rose 16% h-o-h to S$15.9b with the completion of its ~S$905m European data centre portfolio and ~S$534m Galaxis acquisitions, and as a result, gearing rose to 37.6% (from 32.8%).

• Ascendas REIT has secured approval from the URA for the redevelopment of its Science Park property (TÜV SÜD PSB Building), which should gain expect, to be supported by its sponsor.

Source: Maybank Kim Eng Research - 3 Aug 2021