Ascendas REIT

Ascendas REIT: Nomura has reduced DPU forecasts by 1.8-7.4% for FY13-15e, to reflect higher net interest expenses, additional income from the two new assets as well as dilution from the new units issued. Nomura do not think the growth in the recent 1.5% q/q rise in hi-tech industrial rents during 1Q13 is sustainable, considering significant new supply and anticipated slower demand. Vacancy is likely to remain under pressure, especially in the Business Park segment, where projected FY13-15F new supply equals c. 33% of existing stock. The discount between hi-tech industrial rents and office rents also does not appear wide enough to encourage tenants to relocate. AREIT is already trading at an FY14F yield of 5.5% (4ppts above the 10Y bond, vs. the mid-cycle spread of 4.5ppts), i.e. valuation remains rich against a weak rental outlook for the industrial property market. Nomura reiterates NEUTRAL with TP of $2.47, implying a potential downside of 8.5%;