SINGAPORE (July 28): RHB and Maybank KimEng are maintaining their “buy” calls on Ascendas REIT with the same target price of $2.90.
Maybank is forecasting growth in NPI contribution from A-REIT’s business parks and hi-specs properties will outpace its broader asset portfolio, given better supply-demand visibility.
On the other hand, RHB likes A-REIT for continuing to deliver shareholder value through its efficient capital recycling strategy and asset enhancement initiatives.
Recent positive local economic data also points to a potential improvement in industrial demand that should alleviate some of the supply pressure.
In a Friday report, Maybank analyst Chua Su Tye says A-REIT remains the best-leveraged industrial REIT play entering a sector recovery, as the tapering off of new supply in 2017 should benefit its well-entrenched business parks and hi-spec industrial properties.
RHB agrees that positive economic data bodes well for industrial demand recovery. Singapore Purchasing Managers' Index (PMI) expanded for the 10th straight month in June, boosted by improvements in new orders, new exports, inventory, and factory output.
Manufacturing output also rose 13.1% y-o-y in June, with a sharp growth in the electronics and precision engineering sectors. While a higher incoming supply continues to put pressure on the light industrial and logistics sector rents, we believe the improving demand condition should help alleviate some of the pain.
Aggregate leverage was 33.9% in 1Q18 vs 33.8% in 4Q17 will all-in borrowing costs down from 3.0% to 2.9%, hedged borrowing ratio at 72.2% and weighted average borrowing ratio at 3.3 years.
Maybank estimates A-REIT has $1.1-$1.2 billion in available debt headroom to make further acquisitions to drive growth.
In 1Q18, A-REIT further broadened its Australian presence with accretive acquisition of a A$24.8 million logistics property in Melbourne. The manager also divested a light industrial building in Singapore at a hefty 17% premium to the latest valuation.
See: Ascendas REIT posts 4.3% growth in FY17/18 DPU to 4.049 cents
This comes after a busy FY17 where A-REIT acquired $565.6 million worth of assets and divested properties worth $441.6 million.
“We applaud its efforts in delivering value to shareholders by divesting in lower yielding assets and gaining exposure to higher yielding assets with longer lease tenures,” says RHB analyst Vijay Natarajan.
A-REIT is also currently embarking on a two asset enhancement and one redevelopment project worth $73.5 million in total.
To recap, A-REIT’s 1Q18 results came in line with Maybank’s estimates, declaring a DPU of 4.05 cents, 4.3% higher y-o-y and 5.3% higher q-o-q.
This was driven by its Singapore and Australia acquisitions and higher portfolio occupancy, while strength in its business parks and integrated development underpinned a 1.7% rental reversion against softer sector fundamentals.
Revenue and NPI rose 2.7% and 2.6% y-o-y respectively.
“A-REIT is our Top Pick in the industrial sector, offering a good proxy to the favourable business park segment. The stock currently offers FY18F-19F yields of 5.9% and 6% respectively,” says RHB’s Natarajan.
Units in A-REIT are down 1 cent at $2.71 as at 9.50am
