PhillipCapital analyst Natalie Ong has upgraded Ascendas REIT to “buy” from “accumulate” with a lower target price of $3.61 from $3.63 previously.
The upgrade comes as Ong adjusts her forecasts to reflect the REIT’s acquisition of MQX4, while the lower target price is due to the REIT’s higher debt and perpetual securities.
“Recent pullback in share price presents better entry price and total returns of 31.5% to our target price (TP),” writes Ong in a report dated Nov 2.
Ascendas REIT, on Sept 18, announced its acquisition of MQX4, a suburban office under development in Macquarie Park, Sydney. MQX4 was bought at a “as if completed” market valuation of $161 million.
This is the REIT’s third acquisition in 2020 following its purchase of a 25% stake in Galaxis and a logistics asset under development in Kiora Crescent, Yennora, Sydney in March and July respectively.
Portfolio occupancy for 3QFY2020 climbed 0.4 percentage points to 91.9%, while gearing improved from 36.1% to 34.9% due to its $300 million non-call green perpetuals issued at 3.0%, which counted as equity.
However, despite better occupancy in its Singapore portfolio – which saw a 0.9 percentage point increase to 88.8% for the quarter – Singapore’s portfolio rental reversions were a negative 2.8%.
“Larger space signed with negative reversions wiped out AREIT’s +11.5% reversions in the US. Aside from business parks’ positive 4.5%, reversions for the other asset classes were flat or negative… 9MFY2020 portfolio reversions came in at +4.2%. We think low-single-digit positive reversions for FY20e are still achievable owing to stronger leasing locked in in 1H20,” says Ong.
Looking ahead, Ong expects subdued leasing for the REIT as companies continue to hold on their business and expansion plans.
“Singapore industrial rents were weak in 3Q20 while sector occupancy only crept up due to warehouse leasing,” she adds.
Units in Ascendas REIT closed 5 cents higher or 1.7% up at $2.93 on Nov 2.
