SINGAPORE (May 30): UOB KayHian is maintaining its “buy” recommendation on Ascendas REIT (A-REIT) with a target price $2.64.

This comes after the proposed divestment of an asset in China which could free up funds to expand in Australia.

“We reckon that the REIT manager could likely continue to pursue scaling up its Australia operations, which made up 11% of portfolio value as of the last quarter,” says UOB.

The divestment is also in line with management's  strategy for portfolio reconstitution and capital recycling, adds the brokerage house.

To recap, A-REIT is divesting Ascendas Z-link in China for RMB760 million ($160 million), to a wholly owned subsidiary of Cova Zpark Investment Holdings.

The sale price is at 10% premium to latest valuation of Z-link at RMB 690 million ($144.7 million).

In SGD terms, the sale represents a 158% increase over A-REIT's 2011 acquisition price tag of $62 million.

Gearing of A-REIT could also decrease from 37.2% to about 36.4% post divestment, assuming sales proceeds from the sale are used to pare down existing debt.

“The stock is offering a forward yield of 7.1%. We will incorporate the China divestment once the detailed information is released,” says UOB.

As at 11.23am, A-REIT units are trading flat at $2.32.