Deutsche Bank Markets Research Rating

Company

Hold

Ascendas Real Estate Alert

Asia

Date

8 May 2015

Company Update

Singapore Property

Reuters AEMN.SI

Bloomberg AREIT SP

Exchange Ticker SES AEMN

Property Trust

Price at 7 May 2015 (SGD)

2.45

Price target - 12mth (SGD)

2.35

52-week range (SGD)

2.68 - 2.20

Straits Times Index

3,433

Takeaways from NDR Joy Wang

We recently hosted AREIT’s management in Hong Kong. Discussions focused on the company’s growth outlook, operations in Singapore and China, and the impact of rising rates. Headwinds for the rental market, focus on raising occupancies Following the conversion of the former C&P Logistics hub, and the completion of acquisitions at the Aperia, Kendall and Hyflux buildings, management’s near term focus will be to lease out its balance space and achieve compliance with the 70% anchor tenant rule. Recall that AREIT currently has portfolio occupancy of 88%. Looking ahead in FY16, AREIT has limited MTB conversion risk, with c.4% of property income due over the next two years. While the company notes that overall demand trends in Singapore have moderated, demand remains for buildings with attractive locations and characteristics, such as its Aperia building which has attracted MNC’s such as Audi, McDonalds, DHL and others from the office sector. Nevertheless, rental reversions have moderated, slowing to 4.4% in 4Q vs. the 8.3% average for FY15. With passing rents broadly on par with market rents, we expect muted rental reversions for FY16-17 with management guiding for mid-single-digit. Management remains active in its portfolio management, and estimates that c. S$100m will be deployed in AEI exercises annually. Looking ahead, AREIT estimates that its sponsor has a pipeline of S$1bn in assets primarily in Business and Science Parks with the merger at the parent level possibly catalyzing divestments to AREIT. The company will also look to recycle capital by divesting mature assets, particularly in the light industrial space.

Chien-Fie Man

Research Analyst Research Analyst (+65) 6423 5958 (+65) 6423 6897 [email protected] [email protected] Stock data Market cap (SGDm)

5,877

Market cap (USDm)

4,411

Shares outstanding (m)

2,407.4

Major shareholders

Ascendas (17.09%) 65

Free float (%) Avg daily value traded (USDm)

19.6

Source: Deutsche Bank

Key data FYE 3/31 Sales (SGDm) Net Profit (SGDm) DB EPS (SGD) PER (x) Yield(%)

2015A 673 261.2

2016E 706 361.2

2017E 724 374.0

0.11 21.7 6.2

0.15 16.3 6.3

0.16 15.8 6.5

Source: Deutsche Bank

Taking an opportunistic stance in China During 4Q results, AREIT announced that it has undertaken an opportunistic development in Jiashan, worth S$25m. Management has started to market the project, targeting local e-commerce companies and has a target yield on cost of over 8%. Management stated that it will take an opportunistic stance in China, noting that while growth has slowed, asking prices remain lofty, implying cap rates of sub 6%. As a result, management believes that greenfield developments will be the primary growth driver. Firm balance sheet, ample liquidity With gearing of 34%, the company has debt headroom of c. S$700m before reaching a 40% net gearing level. The company estimates that net gearing will rise to c. 37% by end FY16 taking into account small acquisitions and AEIs. On the topic of rising rates, management stated that while base rates have risen, there remains significant liquidity from offshore sources in the market, which has caused spreads to compress. Management notes that it was able to secure a 15yr bond at c.3.64%, at a spread of 95bp. Management believes that given its hedging strategy and abundant liquidity it will be able to maintain an average interest cost of less than 3%. ________________________________________________________________________________________________________________ Deutsche Bank AG/Hong Kong The views expressed above accurately reflect the personal views of the authors about the subject companies and its(their) securities. The authors have not and will not receive any compensation for providing a specific recommendation or view. Deutsche Bank does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors. FOR OTHER IMPORTANT DISCLOSURES PLEASE VISIT http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=AEMN.SI MCI (P) 124/04/2015.