Ascendas REIT - Large scale is the winning formula

Friday, September 4, 2009

Started in 2002 with just eight properties, A-REIT has successfully enlarged its property portfolio across five sub-sectors: Business & Science Parks, High-Tech industrial, Light Industrial, Logistics & Distribution and Warehouse Retail facilities. 47% of its portfolio has built-in rental escalation clauses. These properties enjoy above-sector average occupancy rate of 97.1%.

Acquisitions have underpinned A-REIT’s dividend growth. Its development capability provides an additional boost. Completion of development projects over the next 12 months will continue to contribute positively to income. Growth could also come from acquisitions of its sponsor’s Singapore assets (S$1.1b) and ample industrial properties in Singapore.

A-REIT has completed two rounds of cash calls this calendar year, raising a total of about S$700m. The proceeds have been deployed towards reducing debt and funding its existing developments. Its gearing has been reduced to 29.3% as of Aug-09. This clears any possible overhang on refinancing issues and frees up its capital for future growth.

REIT’s strong sponsor, balance sheet strength, resilient portfolio and growth potential underscore its P/B ratio of 1.05x. We find its share price underperformance hard to justify. We initiate with a Buy.

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