SINGAPORE (July 31): The manager of Ascendas REIT (A-REIT) reported 1Q19 revenues and net property income of $216.6 million and $159.2 million, which were 1.5% and 3.8% higher y-o-y respectively.
See: Ascendas REIT reports lower 1Q DPU of 4.002 cents on absence of one-off
The higher revenues were achieved by the shifting of its portfolio mix towards higher yield assets, contribution from the acquisition of three properties in Australia, and completion of redevelopment works at 50 Kallang Avenue, which offset three divested properties in Singapore.
Distributable income fell by 3.8% to $117.3 million, translating to a DPU of 4.002 cents. The drop was largely due to a reversal of a tax credit from the divestment of its China property – Ascendas Z-Link. On a q-o-q basis, DPU was up 2.4%, implying a steady growth profile.
Portfolio occupancy rate remained stable at 90.5% in June vs 91.5% in March and 91.6% in June 2017. The slight dip was mainly due to a fall in occupancy rates at multi-tenanted buildings in Singapore to 84.2% -- on a same building basis -- which we believe is transitionary in nature.
Rental reversion overall was positive at 10.5% in 1Q19, driven mainly by a 24.8% increase in Hi-tech buildings while other segments remain positive with Business Parks at 5.6%, Light industrial and Flatted Factories at 4.1% and integrated development, amenities and retail at 5.5%. The decline was from the logistics sub-sector at 6.1% largely due to lower rents to retain a major tenant.
Balance sheet remains healthy with aggregate leverage remaining at a conservative 35.7% with a well staggered debt expiry profile of 3.4 years. In the quarter, the REIT issued a new HK$729 million ($125 million) seven-year MTN and an A$200 million term loan facility in June.
While expected hikes in interest rates will have an impact on distributions, DBS notes that A-REIT has close to 72.4% of its interest cost hedged into fixed rates. In fact, with topline expected to still generate growth in the coming years, DBS believes this will more than compensate for the risk of rising interest rates.
A-REIT announced acquisitions of 12 logistics properties in the UK for $373.15 million at a post-cost yield of 5.22% which appears tight but reflects the portfolio’s long WALE of 14.6 years. The strong income visibility and tenant credit represents A-REIT first entry into a new market.
A-REIT also announced the acquisition of 1314 Ferntree Gully Drive, Melbourne for A$16.3 million ($17.7 million) at a post-cost yield of 7.3%. The vendor has provided a rental support for the current vacant space for one year and A-REIT is confident of back-filling the space within the period.
In a Tuesday note, lead analyst Derek Tan says DBS is maintaining its “buy” with $3.00 target price.
As at 10.52am, units in A-REIT are trading 2 cents lower at $2.74, implying of an FY19F distribution yield of 5.9%.
