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Analysts keep Ascendas REIT at 'buy' despite a drop in 3Q DPU

Samantha Chiew
Samantha Chiew • 4 min read
Analysts keep Ascendas REIT at 'buy' despite a drop in 3Q DPU
SINGAPORE (Jan 26): The manager of Ascendas Real Estate Investment Trust (AREIT) on Thursday announced that its 3Q17/18 DPU dropped 0.6% to 3.970 cents from 3.993 cents in 3Q16/17.
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SINGAPORE (Jan 26): The manager of Ascendas Real Estate Investment Trust (AREIT) on Thursday announced that its 3Q17/18 DPU dropped 0.6% to 3.970 cents from 3.993 cents in 3Q16/17.

However, the total amount available for distribution was up by 1.0% to $116.3 million.

The lower 3Q DPU was due to an increase in the number of units in issue and the absence of a one-off property tax refund received last year.

The REIT’s gross revenue for the quarter came in at $217.3 million, 4.1% higher than $208.6 million a year ago.


See: Ascendas REIT's 3Q DPU dips 0.6% to 3.97 cents

As such, DBS is maintaining its “buy” call on AREIT with a target price of $2.85.

The REIT’s portfolio occupancy rates were higher y-o-y at 91.1%, but a slight dip q-o-q, mainly due to lower occupancy rates in Singapore at 88.8%, while Australia remained resilient at 98.5%.

In a Friday report, analyst Derek Tan says, “The REIT continues to attract demand from a wide spectrum of industries but we note that a majority of new demand was from firms in the Transport and Storage, Biomedical, and IT sectors.”

Portfolio rental reversions for the period also were higher at 3.1%, despite a 1.0% drop in reversion for the REIT’s Australian portfolio.

“Overall portfolio reversion was stable q-o-q, a positive sign in our view given the expectations that reversions could turn down or flattish,” says Tan.

Phillip Capital is also reiterating its “accumulate” recommendation on AREIT with a target price of $2.89.

In a Friday report, analyst Richard Leow says that the outlook for the REIT is stable and the contributions from its acquisitions - DNV/DSO in Singapore, 52 Fox Drive, Dandenong South in Melbourne, as well as 100 and 108 Wickham Street in Brisbane – buffered the impact from the lower occupancy during the current quarter.

“We expect the same in the 4Q FY17/18 as only 5.1% of NLA is up for renewal. The tapering new supply of industrial space in 2018, should release some of the ongoing over-supply pressure,” adds Leow.

The REIT has also proposed the divestment of its 84 Genting Lane in Dec 2017 for $16.7 million, 68% higher than the original purchase price of $10.0 million and 5.6% higher than market valuation of $15.8 million.


See: Ascendas REIT divests Genting Lane property for $16.7 mil

Similarly, RHB sticking to its “buy” call on AREIT with a target price of $2.90. The REIT is also RHB’s top pick for Singapore’s industrial sector.

Singapore’s industrial sector is becoming favourable. Jurong Town Corporation (JTC) announced in its 4Q17 report that the overall industrial property occupancy has improved 0.3 percentage points (ppt) q-o-q, driven by an increase in take-up of warehouse space.

JTC also noted that occupancy and rentals are expected to stabilise, with supply tapering in the coming years.

In a Friday report, analyst Vijay Natarajan says, “We expect the business park segment and hi-tech industrial space to be the early movers in the cycle, followed by the logistics segment, which is expected to rebound by the end of the year”

AREIT has appointed a new CEO, William Tay. The analyst views this move favourably as Tay has more than 22 years of experience in real estate from both public and private sectors.

Meanwhile, CIMB joins the rest of the research houses and has upgraded its call on AREIT to “add” from “hold” previously, with a target price of $2.88.

The REIT’s acquired 108 Wickham Street on Dec 22, 207 for A$113.9 million ($120.1 million), or 6.1% NPI yield.

The property is 100% occupied and has a weighted average lease expiry (WALE) of 6.7 years. It is also fully debt-funded, resulting in an increase in gearing to 35.1%.

The REIT also made a forward purchase of a speculative logistics facility in Brisbane for A$30 million.

In a Thursday report, analyst Yeo Zhi Bin says, “Given the cap rate compression in Australia, AREIT would also look for greenfield opportunities”

As at 12.00pm, units in AREIT are trading 5 cents higher at $2.80 or 1.25 times FY18 book with a dividend yield of 5.8%.

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