Saturday, January 23, 2016

Ascendas Reit



Ascendas results is good.

Fear of dilution and hence lower DPU has proven to be unfounded. It is the operation modulus of the REIT to place shares to do yield accretive acquistions. 


There will be a further dilution of 65 mio shares but the Australia properties contribution will only be fully realised next quarter. 

So, the simple maths is the dilution is not a case of worry.

However, with a new CEO, will this operation model changed? That is unknown. As my style of REIT analysis, I always go into 6 areas. Visibility of Grow drivers, impact of rate hike, occupancy rate and rental rate. Then we have valuation risk and since Ascendas is going significantly into Australia, we must account for currency risk. 

Grow drivers & interest rate impact:
Beside the Australia properties, We also have Changi one and new Sydney properties. 

Changi one is supposed to contributed 0.067 cents, and I belived there are at least 5 mio more for distribution in a year that is not yet accounted for in this quarter. (Calculation based on difference in distribution between Q2 and Q3, and the 16 Australia properties start contributing only from 18 Nov with another 10 in 23 Nov) I used estimation, as there is no detailed information on the various properties yet. 


The growth drivers should be able to offset a 50 bps increase in interest rate,
With some to spare. 

As usual, capital management has been prudent with refinancing spread out. 

However, 2017 could see some downward pressure on DPU if we believed FeD will raise 25 bps every quarters. 

Occupancy rate:

Ascendas shared that there is not new supply of business park hence risk of increase in non-occupancy rate in those segment is low.

Good execution with Aperia now almost fully occupied. 

Rental rates:
Australia properties have positive renewal  clause, Changi one is some 15% lower from current level, and REIT has again manage positive rental renewal from
All its business segment. 

However, this good showing means I believed this does not provide anymore buffer for the future. With the exception of distribution and logistic, current rental is not far off from Acsendas's rate


Valuation:

Acsendas REIT yield about 7%, undemanding valuation given its track records. But if u are looking for crisis valuation, think you have to look elsewhere. 

It is also at a prenium to NAV.

Currency wise, Ascendas enter Australia at the time when Australian dollars is weak against Sing Dollars, and I believed it is a good move. Whether Australia will go stronger or weaker, I do not know but at least I know it is nowhere near the peak. 

In conclusion:
Given the sheer size of Ascendas REIT, it is hard for the REIT to make a big impact on its distribution unless it do another purchase like they are doing now. (26 + 1) Australia properties and Changi one within a short span of 1 year. 

Hence visibility of growth is nothing really to shout about if u compare it with CCT. 

Interest rate hike could wipe out its growth drivers. 

But in the same veins, a drastic cut in distribution is also unlikely.

Now you also have new management risk (will they expand aggressively into Australia with no track records to speak of )

I am happy with keeping this, but I am dying to add this when I get my performance bonus? Answer is No 




4 comments:

  1. Hi,

    A-REIT is a solid REIT. But there is one thing that is stopping me from being vested. Its occupancy has been below par compared to other industrial REITs.

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    Replies
    1. Hi dividend knight,

      Can I know which industrial REIT you are comparing with?

      Ascendas has a lot of buildings and numerous on MUlti-tenant. Don't be "fooled" by 100% occupancy rate if all their leases are on master leases or triple leases.

      There are also AEI works that affect occupancy rate.

      Stability of the rate is more important in my opinin

      Delete
  2. Hi SI

    Ascendas Reit is a STI constituent stock, so I also think that the current price is decent with their 7+% dividend yield, even though I'd think they could go much lower from here. I'll play a wait and see attitude to see how things would pan out.

    ReplyDelete
    Replies
    1. Hi B,

      Valuation wise, if I were to add a REIT, I would choose CCT. If both goes down say 10%

      But why the fact it is a STI constituent important

      Delete