Singapore | REITs Asia Pacific Equity Research

ASCENDAS REIT | BUY

21 Oct 2016
MARKET CAP: USD 4.9B AVG DAILY TURNOVER: USD 17M Company Update

GROWING ITS PORTFOLIO BUY (maintain)

INORGANICALLY Fair value S$2.67

2QFY17 recurrent DPU grew 3.6% YoY add: 12m dividend forecast S$0.156
versus: Current price S$2.43
Softer rental reversions in Singapore
12m total return forecast 16%
Improved gearing ratio
2QFY17 results in-line with our expectations Analysts
Ascendas REIT (A-REIT) reported its 2QFY17 results which met our Andy Wong Teck Ching, CFA (Lead) +65 6531 9817
andywong@ocbc.com
expectations. Gross revenue jumped 12.5% YoY to S$205.4m. DPU fell
Eli Lee +65 6531 9112
3.1% YoY to 4.03 S cents, but this was because 2QFY16s DPU was
elilee@ocbc.com
boosted by a one-off S$6.5m (~0.271 cents/unit) distribution of taxable
income from operations arising from a rollover adjustment related to a Key information
ruling by IRAS on the non-deductibility of certain upfront fees incurred in Market cap. (m) S$6,844 /
FY09/10 for certain credit facilities. If we exclude this, A-REITs 2QFY17 USD4,919
recurrent DPU would have grown by 3.6% YoY. On a 1HFY17 basis, A- Avg daily turnover (m) S$23 /
REITs gross revenue increased 13.7% to S$413.0m and formed 49.4% USD17
Avg daily vol. (m) 9.8
of our full-year forecast. DPU of 7.912 S cents was down 1.1% (but
52-wk range (S$) 2.09 - 2.57
recurrent DPU rose 2.4%) and constituted 51.0% of our FY17 projection.
Free float (%) 80.8
Shares o/s. (m) 2,816.3
Growing its portfolio inorganically
Exchange SGX
Operationally, A-REIT registered positive rental reversions of 0.9% for BBRG ticker AREIT SP
its Singapore portfolio, as positive rental uplifts for its Business & Reuters ticker AEMN.SI
Science Parks (+2.8%) and Light Industrial (+0.3%) segments were SGX code A17U
partially offset by Hi-Specs Industrial (-1.1%) and Logistics & GICS Sector Real Estate

Distribution Centres (-4.8%). Overall portfolio occupancy was 89.1% GICS Industry REITs
Ascendas Pte Ltd -
(+0.9 ppt QoQ). During the quarter, A-REIT announced its maiden Top shareholder
19.1%
business park acquisition in Sydney, Australia, and a forward purchase
of a logistics property in Melbourne, Australia, for an aggregate purchase Relative total return 1m 3m 12m

consideration of A$168.2m. Company (%) 0 0 10

STI-adjusted (%) 1 2 13

Maintain BUY
Price performance chart
We pare our FY16 and FY17 DPU forecasts by 1.6% and 5.0%,
respectively, as we assume full conversion of A-REITs Exchangeable
Collateralised Securities into new units. However, we also lower our cost
of equity assumption from 7.5% to 7.2% to take into account A-REITs
healthier balance sheet (gearing lowered from 37.0% to 34.2%), more
diversified portfolio and reduced exposure to China, an emerging
market. Consequently, our fair value estimate increases marginally from
S$2.66 to S$2.67. Despite our lower DPU projections, A-REIT still offers
investors an attractive distribution yield of 6.4% for FY17F and FY18F. It
is also trading at a yield spread of 456 bps against the Singapore
Government 10-year bond yield, which is ~0.3 standard deviation above
Sources: Bloomberg, OIR estimates
the 5-year mean. Maintain BUY.
Key financial highlights Industry-relative metrics
Year Ended 31 Mar (S$ m) FY15 FY16 FY17F FY18F
Gross revenue 673.5 761.0 843.6 881.9
Total property expenses -210.8 -227.3 -245.7 -256.1
Net property income 462.7 533.7 597.9 625.8
Income available for distribution 351.1 378.3 425.3 452.2
DPU per share (S cents) 14.6 15.4 15.6 15.7
Cons. DPU (S cents) na na 15.7 15.8
DPU yield (%) 6.0 6.3 6.4 6.4
P/NAV (x) 1.2 1.2 1.2 1.2
ROE (%) 8.1 6.8 7.3 7.7
Gearing (%) 33.4 37.1 35.8 35.9
Note: Industry universe defined as companies under identical GICS classification listed on
the same exchange.
Sources: Bloomberg, OIR estimates

Please refer to important disclosures at the back of this document. MCI (P) 041/06/2016
 OCBC Investment Research
Singapore Equities

Exhibit 1: Quarterly financial highlights

2QFY16 2QFY17 % Chg 1QFY17 % Chg
(S$m) (S$m) (YoY) (S$m) (QoQ)
Gross revenue 182.6 205.4 12.5% 207.6 -1.0%
Property services fees -7.3 -8.1 10.4% -8.0 1.3%
Property tax -16.2 -10.2 -37.2% -15.2 -32.8%
Other property operating expenses -35.2 -34.7 -1.5% -34.9 -0.7%
Property operating expenses -58.8 -53.0 -9.9% -58.1 -8.8%
Net property income 123.8 152.4 23.1% 149.5 2.0%
Management fees -10.0 -13.4 33.8% -12.0 11.7%
Performance fee 0.0 0.0 nm 0.0 nm
Trust expenses -2.0 -2.3 14.1% -2.8 -18.9%
Finance income 15.2 1.8 -88.1% 1.4 28.0%
Finance costs -20.6 -30.0 45.9% -38.2 -21.5%
Foreign exchange gain/other non property expenses -33.7 -8.7 -74.3% -26.5 -67.2%
Net income 72.7 99.9 37.3% 71.4 39.9%
Net change in fair value of financial derivatives 50.8 1.2 -97.7% 17.2 -93.2%
Revaluation of investment properties 0.0 0.0 nm 0.0 nm
Share of joint venture's results 0.0 0.1 nm 0.1 2.0%
Total return for the year before income tax expense 123.5 101.1 -18.1% 88.7 14.1%
Income tax expense -0.7 13.7 nm -2.1 nm
Total return for the year after income tax expense 122.8 114.8 -6.5% 86.6 32.6%
Non-tax deductible expenses, net and other adjustments -23.5 -4.2 -82.3% 19.2 nm
Amount reserved for perpetual securities holders 0.0 -3.6 nm -3.6 1.1%
Revaluation of investment properties 0.0 0.0 nm 0.0 nm
Income available for distribution 99.3 107.1 7.8% 102.3 4.7%
Total amount available for distribution to unitholders 100.2 112.5 12.3% 106.9 5.2%
Distribution per unit (S cents) 4.16 4.03 -3.1% 4.00 0.9%

Source: REIT Manager

2
 OCBC Investment Research
Singapore Equities

Company financial highlights

Income statement
Year Ended 31 Mar (S$ m) FY15 FY16 FY17F FY18F

Gross revenue 673.5 761.0 843.6 881.9

Total property expenses -210.8 -227.3 -245.7 -256.1
Net property income 462.7 533.7 597.9 625.8
Borrowing costs -113.7 -93.6 -108.2 -106.8
Manager's management fees -38.1 -43.0 -48.3 -48.5
Non-property expenses -45.0 -24.3 -4.8 -4.8
Net income 268.0 372.8 436.7 465.7
Revaluation of invt ppty 47.0 -2.3 0.0 0.0
Total return for the period 397.6 355.7 408.3 435.4
Income available for distribution 351.1 378.3 425.3 452.2

Balance sheet
As at 31 Mar (S$ m) FY15 FY16 FY17F FY18F

Investment properties 7,867.9 9,598.7 9,652.2 9,696.0

Total non-current assets 8,002.9 9,694.9 9,748.7 9,792.8
Cash 41.6 56.2 15.9 19.3
Total current assets 157.5 181.1 152.8 160.7
Total assets 8,160.3 9,876.0 9,901.5 9,953.5
Current liabilities ex debt 220.0 213.9 210.6 218.3
Debt 2,727.7 3,664.6 3,546.4 3,572.7
Total liabilities 3,146.7 4,079.1 3,957.7 3,991.6
Unitholders' funds 5,013.6 5,492.4 5,639.3 5,657.4
Total equity and liabilities 8,160.3 9,876.0 9,901.5 9,953.5

Cash flow statement

Year Ended 31 Mar (S$ m) FY15 FY16 FY17F FY18F

Net income 404.3 380.8 436.7 465.7

Adjustments -29.3 93.9 111.8 110.1
Operating income before working cap chgs 375.0 474.8 548.4 575.8
Change in working capital -12.6 7.0 -43.6 -27.2
Cash generated from operating activities 362.4 481.7 504.8 548.6
Cashflow from investing activities -637.5 -1,492.3 -47.8 -37.7
Cashflow from financing activities 248.6 1,027.0 -497.4 -507.5
Change in cash -26.5 16.3 -40.3 3.3
Cash at beginning of period 67.3 41.6 56.2 15.9
Cash at end of period 41.6 56.2 15.9 19.3

Key rates & ratios FY15 FY16 FY17F FY18F

DPU per share (S cents) 14.6 15.4 15.6 15.7

NAV per share (S cents) 208.4 206.1 195.7 196.0
PER (x) 14.7 17.8 16.1 15.7
P/NAV (x) 1.2 1.2 1.2 1.2
NPI margin (%) 68.7 70.1 70.9 71.0
Net income margin (%) 39.8 49.0 51.8 52.8
Gearing (%) 33.4 37.1 35.8 35.9
DPU yield (%) 6.0 6.3 6.4 6.4
ROE (%) 8.1 6.8 7.3 7.7
ROA (%) 5.1 3.9 4.1 4.4

Sources: Company, OIR forecasts

Company financial highlights

 OCBC Investment Research
Singapore Equities

SHAREHOLDING DECLARATION:

The analyst/analysts who wrote this report holds/hold NIL shares in the above security.

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RATINGS AND RECOMMENDATIONS:

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Important disclosures