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Analysts maintain 'buy' on Ascendas REIT as outlook brightens

Atiqah Mokhtar
Atiqah Mokhtar10/21/2021 06:47 PM GMT+08  • 3 min read
Analysts maintain 'buy' on Ascendas REIT as outlook brightens
Analysts view that a re-rating is on the cards for Ascendas REIT.
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Analysts from RHB Group Research, Maybank Kim Eng, UOB Kay Hian and Citi Research are positive on Ascendas REIT (A-REIT) following its 3QFY2021 ended September business update which came out on Oct 19.

See: Ascendas REIT reports slightly higher q-o-q portfolio occupancy of 91.7% in 3Q business update

All four brokerages maintained their “buy” rating for the REIT. RHB raised its target price by 10 cents to $3.60, while Maybank Kim Eng, UOB Kay Hian and Citi kept their target prices unchanged at $3.65, $3.83 and $3.35 respectively.

Analysts highlight the improvement in overall portfolio occupancy by 0.4 percentage points q-o-q to 91.7%, underpinned by better occupancies in Singapore and Australia. In addition, they are positive on the better rental reversions reported by the REIT, with the portfolio delivering a positive rental reversion of 3.7% for the quarter. A-REIT management is guiding a low single-digit positive rental reversion for the full year.

Analysts were also positive on A-REIT’s balance sheet, noting that gearing levels remain comfortable at 37.4%, implying a debt headroom of $4.2 billion

For RHB analyst Vijay Natarajan, the improved operating metrics are a positive sign, in tandem with A-REIT’s attractive valuations. “Year to date, the stock has underperformed mainly due to the recent rounds of pre-emptive fundraising, in our view,” he remarks.

Natarajan believes that with its strengthening fundamentals, a re-rating is due for the counter as it is currently trading at 1.3 times its book value, compared to large-cap peers trading at some 1.6 times.

Maybank analysts Chua Su Tye echoes Natarajan’s sentiment. “Fundamentals remain strong, backed by scale, rising distribution per unit visibility, upside from acquisitions and/or redevelopments, and further overseas diversification,” he says.

Chua notes that in terms of redevelopment opportunities, A-REIT’s deal pipeline includes $251.2 million worth of deals in Australia over the next two years, as well as the redevelopment opportunity at Science Park I, which he estimates could achieve a 6-7% yield-on-cost.

UOB Kay Hian analysts Jonathan Koh highlights that the Science Park I redevelopment project comes on the heels of the build-to-suit business park that was completed and handed over to Grab on Jul 30. Serving as Grab’s headquarters, the property provides a net property income yield of 6%.

“A-REIT plans to redevelop the TÜV SÜD PSB Building [at Science Park 1] into three high-rise towers catering to IT and life science tenants with retail space and amenities. Plot ratio of 3.5 is likely to be granted, thereby increasing GFA from 342,895sf to 1,200,132sf,” he explains. The size of the development is estimated to be between $800 million to $1 billion.

Like the other analysts, Citi’s Brandon Lee is similarly bullish on A-REIT’s performance. “A-REIT’s 3QFY2021 business update provided a positive operational environment in its core industrial markets, with Singapore impressing most as evidenced by improved occupancy and portfolio-wide decent positive reversions,” he comments.

He views that more deals may be in the pipeline, following A-REIT's acquisition of the remaining 75% stake in business park Galaxis. “With the successful conversion of Galaxis into a limited liability partnership (granting it tax transparency) today and continued strength in its domestic market, we expect AREIT to continue tapping on its sponsor pipeline for external growth,” he says.

Units in A-REIT closed up 2 cents or 0.66% higher at $3.06 on Oct 21.

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