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Aussie acquisitions to boost Ascendas REIT's growth

Samantha Chiew
Samantha Chiew10/31/2017 11:44 AM GMT+08  • 3 min read
Aussie acquisitions to boost Ascendas REIT's growth
SINGAPORE (Oct 31): The manager of Ascendas Real Estate Investment Trust (AREIT) posted an increase of 2.7% in its 1H DPU to 8.108 cents from 7.898 cents last year.
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SINGAPORE (Oct 31): The manager of Ascendas Real Estate Investment Trust (AREIT) posted an increase of 2.7% in its 1H DPU to 8.108 cents from 7.898 cents last year.

Gross revenue grew 3.9% to $429.1 million while net property income (NPI) increased 4% to $313.9 million.

This was mainly due to contributions from the acquisition of 197-201 Coward Street in Sydney; 52 Fox Drive, Dandenong South in Melbourne; and DNV/DSO in Singapore, but was partially offset by the divestment of Ascendas Z-Link and A-REIT City @ Jinqiao as well as the decommissioning of 50 Kallang Avenue for asset enhancement works.

See: Ascendas REIT's 1H DPU up 2.7% to 8.108 cents

Despite the positive results, CIMB is maintaining its “hold” call with a slightly higher target price of $2.72.

In a Monday report, analyst Yeo Zhi Bin says, “We maintain the REIT on 'hold' as there could be a lack of catalysts in the near term.”

As at end September, AREIT’s overall portfolio occupancy rose to 92% compared to 89.1% last year, on the back of a rise in occupancy in the REIT’s properties in Singapore, including its multi-tenanted buildings.

However, Australia occupancy fell due to a non-renewal at 1A and 1B Raffles Glade in Sydney, but a new five-year lease was secured for the space and will commence in 3Q17. Rental reversion was flattish.

In addition, positive rental reversions were achieved throughout all the REIT’s Singapore clusters.

The REIT recently acquired No.100 Wickham Street in Queensland, Australia for $89.8 million.

See: Ascendas REIT acquires CBD fringe office property in Australia for $90 mil

The analyst raises the FY19-20 DPU as he incorporates this acquisition. The property is currently fully occupied and has a WALE of 4.3 years with annual rental escalation of 3-4% per annum.

The divestments of No.10 Woodlands Link and No.13 International Business Park has also been factored in.

Moreover, Yeo says that despite the REIT’s sound capital management, he does not think that there will be acquisitions in the near-term.

On the other hand, Phillip Capital is reiterating its recommendation on AREIT to “accumulate” with a target price of $2.86.

In a Tuesday report, analyst Richard Leow says that the outlook is stable for AREIT, as there are no leases expiring in Australia for the remainder of the financial year, while 9.2% of Singapore leases by gross revenue are expiring in the remainder financial year.

“We expect recent acquisitions to drive gross rental growth in FY18 by 4.3% y-o-y and DPU growth of 0.9% y-o-y,” says Leow.

RHB also continues to rate AREIT a “buy” with a target price of $2.90.

AREIT noted that it likes Australia because it shares a similar risk profile to Singapore with assets offering reasonably high yields, while the REIT’s management says that it could potentially double its Australian exposure to 30% from 15% over the medium-term.

In a Tuesday report, analyst Vijay Natarajan says, “We like AREIT’s strategy of increasing exposure to Australia as the assets are mainly freehold in nature, provides stability with its triple net lease structure, and a has in-built annual rental escalations.”

Meanwhile, gearing remains at a comfortable 33.1%, offering about $1 billion in debt headroom for acquisitions, assuming 40% gearing levels.

“AREIT is our top pick in the industrial sector and offers a good proxy to the favourable business park segment in Singapore,” says Natarajan.

As at 11.45am, units in AREIT are trading at $2.72.

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