SINGAPORE (Apr 24): Research houses RHB, CIMB, DBS and Maybank are maintaining their “buy” call on Ascendas REIT while OCBC is the only research house with a “hold”.
A-REIT’s 4Q18 DPU grew 1.5% y-o-y, mainly due to the acquisitions of DNV/DSO in Singapore, 52 Fox Drive in Melbourne as well as 100 & 108 Wickham in Brisbane.
The redeveloped 50 Kallang Ave, which was fully leased to Schneider Electric, also contributed.
Gross revenue for 4Q18 rose 3.3% y-o-y to $215.7 million while full-year gross revenue increased 3.8% to $862.1 million.
FY18 DPU was boosted by a one-off distribution amounting to $5.9 million or 0.20 cent per unit. Excluding this, DPU would have grown 0.3% instead.
RHB says A-REIT has delivered yet another healthy quarter, aided by acquisition contributions and organic growth.
A-REIT remains a prime beneficiary of the expected turnaround in Singapore’s industrial sector but looking ahead, the A-REIT is also seeking to tap into the US and Europe markets for potential acquisitions.
“It remains our industrial sector top pick. Maintain ‘buy’ with a higher target price of $2.95,” says analyst Vijay Natarajan. RHB has a target price of $2.95.
A-REIT saw a –6.8% reversion during the quarter, however CIMB analyst Yeo Zhi Bin says this was due to the –18.8% reversion for a car showroom lease on the ground floor of a high-specs industrial building. Excluding this, reversion would have been +2.4%.
As at end FY18, gearing stood at 34.4% and A-REIT has debt headroom of $1 billion for further acquisitions, assuming 40% gearing.
“We continue to like AREIT for its size and stability. As the largest business parks landlord in Singapore, it is a proxy to a stable and recovering sub-asset class as well as to Singapore’s Industry 4.0,” says Yeo. CIMB has a target price of $2.85.
DBS 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 acquire creatively, says analyst Derek Tan.
In fact, Tan sees ample opportunities for the manager to deliver earnings surprises which include the REIT’s ability to re-let close to 12% of vacant space in its portfolio and acquisitions which the Street has not priced in.
“While there are abundant opportunities available, the manager remains disciplined in its investment approach, which we believe is to buy more “income producing” assets rather than speculative builds,” says Tan. DBS has a target price of $3.00.
Maybank has updated its model for A-REIT following weaker than expected 4Q18 results with DPU coming in slightly below its estimate although this was in line with the Street.
After adjusting for recently announced deals, Maybank is lowering its forecast DPUs by 1-3%.
“We continue to see A-REIT as the best proxy to recovering industrial sector fundamentals, given its concentrated business parks and high-specs portfolio,” says analyst Chua Su Tye.
With a new CEO firmly in place, Chua expects a pick-up in growth momentum as it effectively recycles capital, which underlies its 3.5% three-year DPU CAGR estimate. Maybank has a price target of $3.05.
Playing the contrarian, OCBC has a “hold” with on A-REIT with a higher fair value to $2.71.
A-REIT’s 3.8% higher full-year gross revenue of $862.1 million formed 97.5% of the research house’s FY18 forecast while the 1.6% rise in DPU to 15.99 cents constituted 100.4% of its projection.
OCBC analyst Andy Wong says A-REIT’s management has guided for slight improvement in rental reversions for FY19. Meanwhile, new CEO William Tay is actively looking at new markets with Europe and the US most probable destinations for inorganic growth and suburban offices and business parks as likely asset classes for acquisitions.
As at 4.38pm, units in A-REIT are down 2 cents at $2.69 giving it a yield of 5.9% based on OCBC forecast FY18 DPU.
