SINGAPORE (April 30): Maybank Kim Eng and OCBC Investment Research are maintaining their “buy” and “hold” calls on Ascendas REIT (AREIT) while raising their price target and fair value estimate to $3.20 and $2.74 from the previous $3.10 and $2.64, respectively.
This comes after the REIT manager declared a 4Q19 DPU of 4.1 cents, up 6.1% y-o-y on revenue growth and lower non-property expenses, and in line with both research houses’ expectations.
In a Tuesday report, Maybank analyst Chua Su Tye says AREIT continues to be his top sector pick for its strong fundamentals well-supported by its scale; the REIT’s concentrated Singapore business parks / high-specs portfolio; as well as DPU upside from overseas diversification.
He remains positive on the Singapore REITs (S-REITs) space in general as he expects rates to stay lower for longer against the current rate hike cycle, and believes AREIT is best placed to benefit as the sector’s largest and most liquid proxy.
“Our DPUs are slightly changed (-1%) and our DDM-based TP increases 3% to $3.20 as we roll forward to FY20 (COE: 7.1%, LTG: 2.0%). We see risk of near-term profit taking given the strong share price performance but we remain positive longer-term with the shares offering a total return of 12% in FY20E (DPU 5.5% and TP upside 6%),” comments Chua on the trust’s revised valuations.
OCBC analyst Low Pei Han is more cautious on ART given its management’s recent guidance of flat rental reversions ahead. In particular, she notes that the FY20F distribution yield of 5.4% is “tight” given that it is about 2.4 S.D. below its eight-year mean of 6.4% as at its Monday closing price.
The higher $2.74 fair value estimate comes after rolling forward valuations and incorporating a lower risk-free rate assumption of 2.3% compared to 2.7% previously.
Low nonetheless continues to like AREIT for its healthy balance sheet with an aggregate leverage ratio of 36.3%, leaving the trust ample debt headroom of about $700 million to fund inorganic opportunities before it reaches the 40% gearing level.
She believes such opportunities are likely to come from overseas, as the REIT looks to build upon its UK platform with the possibility of entering other European markets.
“Other growth avenues could come from redevelopment projects, and AREIT typically targets ROI in excess of 7% for such projects,” adds the analyst.
As at 3:12pm, units in AREIT are up by 1 cent at $3.02, implying a FY20E DPU yield of 5.52% based on Maybank estimates.
