• Ascendas REIT (SGX:A17U) saw improved occupancies in Singapore and Australia in 3Q21, and better rental reversions, underpinned by its Singapore business spaces, high-specs industrial & data centres, and logistics & distribution centres.
• Fundamentals remain strong, backed by scale, rising DPU visibility, upside from acquisitions and/or redevelopments, and further overseas diversification.
• With S$12.8b or 80% of AUM entrenched in new economy assets, Ascendas REIT remains the best S-REIT growth proxy.
• Our forecasts and S$3.65 DDM-based target price (COE: 6.2%, LTG: 2.0%) for Ascendas REIT are unchanged.
• Ascendas REIT's valuations are undemanding at 5.2% FY21 yield and ~4% DPU CAGR for this large-cap liquid name. BUY.

Higher Occupancies in Singapore, Australia

• Ascendas REIT's portfolio occupancy improved q-o-q to 91.7% (from 91.3% in 2Q21) as higher occupancies in Singapore (87.9% to 88.5%) and Australia (95.8% to 97.5%) offset a dip in the US (from 92.8% to 91.4%). Tenants in the biomedical, logistics and engineering trade segments accounted for the highest proportion of new demand by gross rental income in 3Q21, at ~21%, ~18% and ~16% respectively.
• Vacancies tightened for its industrial and logistics properties in Singapore, and we expect leasing to gain pace into the coming quarters as demand recovers.

Rental Reversion Eased to +3.7%, Rents on a Rise

• Ascendas REIT's portfolio delivered a +3.7% rental reversion, which eased from +8.9% in 2Q21, and +3.0% in 1Q21. Reversions in Singapore were stronger at +3.6%, vs +3.4% in 2Q21 and +2.9% in 1Q21, led by its business spaces, maintained at +3.7%, high-specs industrial & data centres at +5.1% (from +4.8%), and logistics & distribution centres at +4.6% (versus +4.9%), while the US jumped +15.0% (from +26.3% in 2Q21 and +6.2% in 1Q21).
• With Singapore’s industrial rents bottoming out, and its US properties under-rented (by 10- 30%), we remain optimistic on rental growth, with reversions tracking its low single-digit positive guidance for full-year 2021.

Strong Balance Sheet, Redevelopment Upside

• Ascendas REIT's AUM was a S$4.2b debt headroom (at 50% limit). Its deal pipeline includes S$251.2m in Australia over the next two years, and the redevelopment opportunity at 1 Science Park Drive to Ascendas REIT's ESG metrics in report attached below.

Source: Maybank Kim Eng Research - 20 Oct 2021