Analysts from DBS Group Research and UOB Kay Hian are positive on Ascendas REIT (A-REIT) after the REIT announced that it will redevelop 1 Science Drive in a joint venture with CapitaLand Development (CLD) on Nov 15.
See: Ascendas REIT to jointly develop 1 Science Park Drive with CapitaLand Development for $883 mil
DBS analysts Dale Lai and Derek Tan have kept “buy” with an unchanged target price of $4 as they deem the redevelopment a “long-term catalyst”.
To them, A-REIT is attractively valued compared to its other large-cap peers. The REIT currently offers an attractive 5.2% yield, which is among the highest compared to the larger cap industrial Singapore REIT (S-REIT) peers.
“Having acquired more than $1.7 billion year-to-date (y-t-d), A-REIT is on track to deliver distribution per unit (DPU) compound annual growth rate (CAGR) of more than 4.0% between FY2020 to FY2023,” they write in a Nov 16 report.
The REIT’s structural tailwinds from e-commerce, data centres and office decentralisation could also drive higher earnings, as well as growth in capital values in the longer term, add the analysts.
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“While A-REIT can tap its sponsor for an attractive pipeline of new economy properties, there is significant value from the potential redevelopment of its Science Park assets,” they write.
“The redevelopment of 1 Science Park Drive together with its sponsor paves the way for $5.6 billion in gross development value to be unlocked for its assets at Science Parks 1 and 2.”
In addition, Lai and Tan believe that investors have not “priced the net asset value (NAV) uplift from the redevelopment of its other Science Park assets into properties with higher specifications and higher plot ratios”.
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UOB Kay Hian analyst Jonathan Koh has also kept “buy” on A-REIT with the same target price of $3.83.
“On a stabilised basis, [A-REIT’s] 34% stake provides net property income (NPI) yield of 6.3% post-transaction cost and increase pro forma 2020 DPU by 0.5%. A-REIT provides 2022 distribution yield of 5.3%,” writes Koh in a Nov 17 report.
The way he sees it, 1 Science Park Drive is an ideal location for biomedical research and development (R&D) due to its close proximity to National University of Singapore (NUS) and National University Hospital (NUH).
As it is, 80,000 sqm or 71% of the 112,500 sqm of its business park space is designed for biomedical R&D activities (wet lab-ready).
“Several reputable technology and biomedical R&D players have expressed strong interest for the upcoming spaces at Science Park 1,” he says
Koh has also kept his DPU estimate forecast for A-REIT unchanged as 1 Science Park Drive will only be completed in 2QFY2025.
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Units in A-REIT closed flat at $3.04 on Nov 23, or an FY2021 P/NAV of 1.4 times and DPU yield of 5.3%, according to DBS’s estimates.