Ascendas REIT - Riding on industrial growth

􀂾 Story: Ascendas REIT’s (A-REIT) results were in line with
expectations. Gross revenue and net income available for
distribution grew 14% and 13% y-o-y to S$77.3m and S$44.7m
respectively. This improvement was mainly due to additional
rental income from completed acquisitions. Distribution per unit
(DPU) grew 9% y-o-y to 3.37 cents.
􀂾 Point: With the positive outlook for the High-Tech industrial
space and Business and Science Parks, A-REIT is expected to
benefit from its exposure in these two sectors. Moving forward,
A-REIT would continue to seek potential asset enhancement for
its existing properties, pursue yield accretive acquisitions and
broaden its investment focus on build-to-suit development
projects.
􀂾 Relevance: In view of higher rental reversions, we have
increased our DPU forecasts. Hence, this has raised our target
price to S$3.16 based on DCF valuation. Maintain Buy. With a
total return, including yield, of 11%, we are maintaining our Buy
recommendation.
1QFY08 results. Gross revenue and net income available for distribution
grew 14% and 13% y-o-y to S$77.3m and S$44.7m respectively. This
improvement was mainly due to additional rental income from
completed acquisitions. Distribution per unit grew 9% y-o-y to 3.37
cents.
Continued growth in industrial rent. According to CBRE, the average
rent for all industrial space increased in the second quarter of 2007. Hi-
Tech industrial properties led the growth, recognising an increase of
11.9% q-o-q. With rising office rents and supply of office space
remaining tight, the demand for high-end quality business space is
expected to be strong. Therefore, we remain optimistic on the outlook
for High-Tech industrial space and Business and Science Parks, of which
A-REIT has a total exposure of 45% (by portfolio value).
JTC’s plan revealed. JTC announced its plan to divest property worth
between S$1.4bn and S$1.6bn. At least half of the industrial assets
would be placed in a trust (expected to be set up in 2Q2008) that will
be listed on the SGX. However, we note that the potential acquisition
pipeline coming from its sponsor, Ascendas Land (Singapore) Pte Ltd
(Ascendas), is still strong.
Maintain Buy with raised target price of S$3.16. Moving forward, in
view of higher rental reversions, we have increased our DPU forecasts.
DPU forecast for FY08 and FY09 increased by 4% and 9% respectively.
Hence, this has raised our target price to S$3.16 based on DCF
valuation, which incorporates an acquisition pipeline of S$400m p.a. till
2010. With a total return, including yield, of 11%, we are maintaining
our Buy recommendation.