Continue reading this on our app for a better experience

Open in App
Home Capital Broker's Calls

Analysts see value in Ascendas REIT on diverse portfolio and asset class mix

Felicia Tan
Felicia Tan • 3 min read
Analysts see value in Ascendas REIT on diverse portfolio and asset class mix
While Ascendas REIT’s (A-REIT) 1H20 results have come in slightly below OCBC Investment Research’s (OIR) expectations, the brokerage’s research team says it continues to “like” the REIT’s geographically-diverse portfolio and asset class mix.
Font Resizer
Share to Whatsapp
Share to Facebook
Share to LinkedIn
Scroll to top
Follow us on Facebook and join our Telegram channel for the latest updates.

While Ascendas REIT’s (A-REIT) 1H20 results have come in slightly below OCBC Investment Research’s (OIR) expectations, the brokerage’s research team says it continues to “like” the REIT’s geographically-diverse portfolio and asset class mix.

The team has maintained its “buy” recommendation on the REIT with a higher target price of $3.92, from $3.52 previously.

However, the team has lowered its distribution per unit (DPU) forecast by 3.3% on rental waivers to tenants. It has also increased its FY21F DPU forecast marginally by 0.1% due to A-REIT’s recent proposed Sydney acquisition.

A-REIT, on July 23, announced a 10.8% y-o-y decline in its DPU to 7.27 cents, which came up to around 45.8% of OIR’s FY20F forecast. The lower DPU was due to an enlarged unit base and the presence of a one-off distribution of some $7.8 million in 1H19.


See: Ascendas REIT posts 10.8% drop in 1H20 DPU to 7.27 cents

Around 46% of A-REIT’s portfolio valuation as at June 30 is contributed by its business and science park or suburban office. Another 25% is contributed by its logistics and distribution centre, while 16% comes from its high-specifications industrial and data centres.

“We see room for inorganic growth opportunities ahead given A-REIT’s healthy aggregate leverage ratio of 36.1%. Furthermore, we believe equity funding conditions are also more favourable for A-REIT as compared to its last US Business Park portfolio acquisition in Nov last year,” says the team in a July 24 report.

“This is because there are fewer S-REITs that are likely to come to the market for equity fund raising exercises (less competition), while liquidity is ample (institutional funds waiting on the side-lines) and A-REIT is trading at a tighter yield than in Nov 2019 (more conducive to make DPU accretive acquisitions),” they add.

DBS Group Research analysts Derek Tan and Dale Lai have raised their target price for A-REIT to $4 from $3.45 previously as they expect A-REIT to catch up with its large-cap peers in terms of valuation.

In a July 24 report, Tan and Lai believe that A-REIT’s diverse portfolio and exposure to multiple “structural tailwinds” will drive earnings and capital values in the long term, something they feel, investors have neglected.

“The REIT remains in a virtuous cycle of growth and we see a boost from potential accretive acquisitions,” they say.

“While investors have focused on acceleration in demand for logistics (27% of AUM) and data centres (5%), most have largely ignored A-REIT’s valuable business parks exposure (43% of AUM - 32% in SG, 11% in the US ) which would benefit from the future trend towards decentralised offices as more companies adopt flexible working arrangements,” they add.

Looking ahead, the analysts recognise that A-REIT’s leading position within the business parks, hi-spec industrial properties, and logistics sectors, will enable the REIT to capture a wider spectrum of industries.

Conversely, CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei have downgraded their call to "hold" on the REIT on the recent share price rally and limited near-term upside. They have also priced the stock at a higher fair value of $3.12, from $3 previously, as they lower their cost of equity on the stock.

While the analysts recognise A-REIT's stable portfolio occupancy of 91.5%, Lock and Eing also foresee near-term "drags" from rent reliefs to its tenants.

Following the REIT's results, Lock and Eing have reduced their DPU estimates for FY20-22F by 2.2-2.6% to factor in "slight changes" in its portfolio occupancy.

As at 4.14pm, units in Ascendas REIT are changing hands 3 cents higher or 0.9% up, at $3.46.

×
Loading next article...
The Edge Singapore
Download The Edge Singapore App
Google playApple store play
Keep updated
Follow our social media
© 2024 The Edge Publishing Pte Ltd. All rights reserved.