1Q13 results slightly ahead of our expectations. Ascendas REIT (A-REIT) reported an 18% and 14% y-o-y growth in topline and net property income to S$142m and S$101.1m respectively. The strong performance was largely attributable to an expanded portfolio (102 properties as at end 1Q13 vs 93 properties a year ago) upon completion of its acquisitions and development projects, while underlying organic growth remained positive. Distributable income came in at S$76.5m (+16%), translating to a DPU of 3.53 Scts (+10%). 1Q13 results forms 26% of our full year FY13F.
Our View
Portfolio demonstrates operational resilience, Business Parks segment outperforms. Operationally, average occupancy levels continue to remain stable at 96.4% (flat compared to a quarter ago) while rental reversions remained high at 11.6% compared to previously contracted rates. An outperformer in our view is its Business Parks segment, which saw average positive reversions of close to 11%. Looking ahead, we expect renewal activities to remain fairly stable, cushioned by expiring rental rates being 16- 35% below current market levels in the coming 2 financial years. Our earnings estimates are raised by
c2.5-3.5% as we tweak our occupancy and rental renewal assumptions going forward.
Financial flexibility to undertake capex; developments/AEIs to underpin steady income growth. Gearing remained at 32.7% as of 30th June12 but should head up to c. 36% (S$227.8m yet to be funded) after taking into account its committed investments. These various developments and asset enhancement activities should complete progressively over 2HFY13-FY14, underpinning incremental earnings growth in the coming quarters.
Recommendation
HOLD, TP raised to S$2.23 based on DCF. A-REIT currently trades at 1.15x P/BV, offering FY13-14F yields of 6.3%-6.4%, which we believe is fair. Our HOLD call is maintained given limited price upside to our revised target objective.
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