CFA Society Singapore
SINGAPORE (Oct 26): Ascendas REIT (A-REIT) reported 2Q19 DPU of 3.887 cents, –4.2% y-o-y driven by lower occupancy in Singapore, additional interest expense and expanded number of units.
In a Friday note, DBS Group Research says A-REIT’s 2Q19 results came in line with estimates. Lead analyst Derek Tan says A-REIT remains one of the must-haves among Singapore REITs.
“Priced at a premium, A-REIT offers a steady 1% growth in DPU backed by a solid portfolio with the ability to embark on earnings accretive acquisitions,” says Tan.
Tan says A-REIT’s key attractiveness is its focus on the business park space -- making up 37% of earnings -- that is in a strong position to capture the changing needs of doing business in the “New Economy”.
DBS has revised its DCF-based target price to $2.95 to account for higher discount rates.
“Maintain ‘buy’ on the back of total potential returns of 15%,” says Tan.
For Maybank KimEng, A-REIT’s 2Q19 DPU came below forecast due to weaker Singapore occupancies but is reiterating “buy” on overseas diversification.
“We continue to like A-REIT for its scale and see it as the best proxy to recovering sector fundamentals given its concentrated business parks and high-specs portfolio,” says analyst Chua Su Tye.
Management remains pessimistic on its Singapore operations as tenants are still rationalising against a tail-end of high supply.
However, A-REIT sees opportunities to scale up its UK AUM with more accretive single-asset deals.
“We factor in recently completed deals, including the second UK portfolio acquisition at GBP257.5 million ($459.2 million)... Meanwhile an announcement of its proposed build-to-suit facility development in Singapore at $109 million is likely forthcoming,” says Chua.
Maybank’s DDM-based target price is revised down slightly to $2.95.
Jefferies is maintaining A-REIT at “buy” given a well diversified portfolio and financial flexibility although 1H DPU came in slightly below the run rate of its full-year estimate at 48.6%.
A-REIT has about 20.8% and 23.6% of gross rental income due for renewal in next two fiscal and management has reiterated operating conditions remain “challenging and tenants have bargaining power”.
But given the timing mismatch between capital raise and acquisitions and possibility of back filling of vacant space in Singapore, Jefferies is leaving its estimate unchanged.
As Jefferies sees it, A-REIT’s low gearing of 33% gives it the financial flexibility to diversify and grow the portfolio.
During the quarter, A-REIT acquired assets worth $437.9 million in UK and Australia and divested one Singapore property worth $13.6 million. A-REIT also raised $452.1 million equity in anticipation of future acquisitions. This lowered aggregate gearing to 33.2% as manager looks to acquire more in overseas markets while staying selective in Singapore
Trading at $2.52 as at 2.28pm, A-REIT’s FY19F DPU of 16.22 cents gives a yield of 6.4%.