Initiating with Accumulate rating and DDM valuation of $2.86
We like Ascendas Real Estate Investment Trust (A-REIT) for its track record of growing YoY distributions to Unitholders, active capital recycling, repositioning of portfolio mix and stability through its well-diversified portfolio. Our dividend discount model (DDM) valuation represents an implied 1.35x multiple over FY18e net-asset-value.
Investment Thesis – Established and diversified platform that continues delivering returns
Investment Merits
Investment Risks
REIT Snapshot
Investment Thesis – Established and diversified platform that continues delivering returns
We view A-REIT as an established platform that has delivered growth through active portfolio rebalancing and achieved stability through portfolio diversification. DPU has grown at a 3.0% CAGR over the last five years, from 13.6 cents in FY12 to 15.7 cents in FY17. A-REIT has rebalanced its geographical footprint by gaining a foothold in Australia and exiting from China. The portfolio remains diversified across asset type, lease structure and tenant trade sector.
Figure 1: Unitholder distributions (cents) grow at a steady pace
Source: Company, PSR
Achieving stability through portfolio diversification
Diversification by geography and property type
The portfolio is currently split between Singapore and Australia. Singapore remains the home base, while the Australia assets make up 14% of total portfolio value. Australia is attractive for its freehold land status and market transparency. A-REIT had divested its three China properties during FY17.
The Singapore portfolio is diversified across the five property types of: (1.) Business and Science Park properties, (2.) Integrated development, amenities & retail (IDAR) properties, (3.) High-specifications industrial properties and data centres, (4.) Light industrial properties and flatted factories, and lastly, (5.) Logistics & Distribution centres.
The Australia portfolio consists of only Logistics & Distribution centres and one Business park property.
Figure 2: Portfolio diversification by geography and property type
Source: Company
Diversification by number of properties
A-REIT has 131 properties in its portfolio as at end-March 2017. The largest contribution to the portfolio’s monthly gross revenue from any property is 5.4%. Consequently, A-REIT is not heavily dependent on the income from any single property in its portfolio. The largest contribution to gross revenue is attributable to the property located at 8, 10, 12 Kallang Avenue known as Aperia. Aperia is an Integrated development, amenities & retail (IDAR) property consisting of two Business towers connected to a three-storey Retail mall.
Diversification by tenant trade sector and individual tenants
A-REIT’s tenants span across more than 20 trade sectors. A-REIT’s portfolio does not have a majority exposure to any particular trade sector. The largest exposure comes from the third-party logistics (3PL) and freight forwarding segment, accounting for 10.6% of monthly gross revenue. At the same time, A-REIT’s 10 largest tenants account for 20.8% of portfolio gross revenue, with Singapore Telecommunications Ltd being the largest at 4.8%. Consequently, A-REIT’s portfolio experiences low single-customer concentration risk.
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Richard covers the Transport Sector and Industrial REITs. He graduated with a Master of Science in Applied Finance from the Singapore Management University. He holds the CFTe and FRM certifications and is a CFA charterholder.
He was ranked #2 Top Stock Picker (Asia) for Real Estate Investment Trusts in the 2018 Thomson Reuters Analyst Awards, and ranked #2 Top Stock Picker (Singapore) for Resources & Infrastructure in the 2016 Thomson Reuters Analyst Awards.