Ascendas Reit

CIMB RESEARCH on 5 March 2012

AN unprecedented supply of new business-park space is anticipated in the next four years. While there could be some pressure on Ascendas Reit's (A-Reit) business parks, we believe fears may have been overdone.
We maintain our estimates and DDM target price (discount rate 8.6 per cent) but downgrade A-Reit to 'neutral' from 'outperform' in view of limited catalysts. Sixty-one per cent of supply pre- committed: We anticipate almost seven million square feet (sf) of new business / science park space between 2012 and 2015. Almost 40 per cent of this should be completed in 2012.

There are some doomsday forecasts in the market, which we believe are over pessimistic. For the whole seven million sf of new supply, pre-commitment is 61 per cent. For the 2.8 million sf of new space completing in 2012, 68.5 per cent has been pre-committed.

Demand looks positive, still: Net formation of companies that are likely to take up space at business/ science parks (manufacturing information & communication, financial & insurance, professional scientific & technical activities, and arts & entertainment) is still positive, auguring well for take-up of business- park space.

On a weighted average basis, gross income from buildings with average rents below $2.75 psf contributed 40 per cent to its gross income in FY2011. We believe the pockets of low-based rents in its portfolio provide a safety net for possible negative rental reversions.
NEUTRAL