Robust year ahead for Ascendas REIT

As positive rental reversions of 6% - 28% were achieved across all its industrial subsectors in 3Q12.

OCBC believes REIT’s initiatives on several development projects, together with its recent acquisitions, would continue to drive growth in its distributable income.

Here’s more from OCBC:

Boost from development project and acquisitions.
Ascendas REIT’s reported a 5.8% YoY growth in 3QFY12 DPU to 3.48 S cents, slightly ahead of our forecast. The outperformance, we note, came mainly from a higher-than-expected growth of NPI (up 11.6% YoY), driven by contribution from the completion of a development project and acquisitions since Dec 2010. This brings the 9MFY12 DPU to 10.06 S cents, or 78% of our full-year DPU estimate (75.1% of consensus).

Rental and occupancy rates held up well.
Operating metrics for the quarter again proved A-REIT’s portfolio resilience. Positive rental reversions of 5.7-28.4% were achieved across all its industrial subsectors, despite a moderation in the economic growth.

While the portfolio occupancy eased marginally to 95.9% from 96.4% in the previous quarter, we note that it was impacted by the recent acquisition of Corporation Place (which had low occupancy rate) and asset enhancement works at 9 Changi South. Excluding these, occupancy would have inched up by 0.1% to 96.5%.

Expecting stable performance.
Going forward, we remain confident that A-REIT will continue to perform. The REIT has embarked on several development and asset enhancement projects that are expected to complete in the coming quarters. We believe these initiatives, together with its recent
acquisitions, would continue to drive growth in its distributable income. We also observe that the current market rates are 18-34% higher than A-REIT’s passing rents for the area due for renewal in FY13. We thus see potential for the REIT to benefit from further positive rental reversions, unless the market deteriorates drastically.

We raise our FY12 forecasts by 3.0-4.1% as we incorporate the results into our assumptions. This in turn lifts our DDM-based fair value to S$2.30, up from S$2.24 previously. We continue to like A-REIT’s robust portfolio, proven track record and growth potential. Maintain BUY.