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Tue, October 27, 2020 – 11:49 am
UPDATED Tuesday, October 27, 2020 – 12:57 pm
ANALYSTS such as Ascendas Real Estate Investment Trust (A-Reit) for its strong balance sheet, diversified portfolio and tenant base, focus on sustainability and best portfolio occupancy achieved in the third quarter.
And given the drop in unit price of commercial space and industrial real estate investment trust, CGS-CIMB has also updated the counter to “add” from “hold.”
The brokerage increased its target price based on the dividend discount model to S $ 3.20, from S $ 3.12 previously, as it progressed its assumptions to fiscal year 21.
“A-Reit’s (share) price has declined about 13 percent in the past three months and offers an attractive fiscal year 21 return of 5.1 percent,” wrote analysts Lock Mun Yee and Eing. Kar Mei in a note on Monday night.
Likewise, Jefferies, which has a “buy” recommendation, said in a report Tuesday that after the recent A-Reit unit selloff, valuations are now “a little more reasonable with a forward yield of 8.4 percent more growth “.
OCBC Investment Research called the stock a “good entry point,” given that it is trading at an attractive dividend yield of 5.1 percent for fiscal year 20 and 5.4 percent for fiscal year 21, based on Monday’s closing price. The investigation team rated the counter as a “purchase” with a fair value of S $ 3.92.
“We like A-Reit’s ongoing sustainability campaign. It recently issued a S $ 100 million green bond and S $ 300 million Green Perpetual Securities … and it also has the most green brand properties in BCA (Building and Construction Authority) among the S-Reits (Singapore-listed Real Estate Investment Trusts), “OCBC said Tuesday.
CGS-CIMB analysts also marginally cut their estimates for fiscal 2020 per unit distribution (DPU), but raised their estimates for fiscal year 21-22 DPU to account for interest cost savings from perpetuals. Green issued in September, which were used to redeem the previous 4.75 percent. perpetual cents on the date of the first summons of the latter.
CGS-CIMB’s higher DPU estimates for fiscal year 21-22 also took into account new contributions from two Australian properties under development, scheduled for completion in the next two years.
In a Tuesday note, Maybank Kim Eng (Maybank KE) maintained its “buy” rating and S $ 4.00 price target for A-Reit.
Maybank KE analyst Chua Su Tye wrote that the trust has delivered another stable quarter and is the industry’s top pick from the research team.
“Fundamentals remain strong, supported by scale, concentrated business park portfolio, and DPU’s advantage of further diversification abroad,” Chua said.
“Valuations are demanding with a 5.4 percent return for fiscal year 21,” he added.
CGS-CIMB noted that A-Reit’s balance sheet is healthy with 34.9 percent leverage and approximately 6 percent of its total debt will be rolled over for the remainder of fiscal 2020.
“Based on a 50 percent aggregate leverage assumption, A-Reit has a potential debt spread of around S $ 4.2 billion to fund any acquisitions,” said CGS-CIMB analysts. “This puts the trust in a strong position to evaluate inorganic growth opportunities.”
CGS-CIMB also noted the slight rebound in A-Reit’s portfolio occupancy to 91.9 percent for the third quarter, from 91.5 percent in the previous quarter. This was driven by higher occupancy in the Singapore portfolio, but partially offset by lower acceptance from Australia, according to the A-Reit manager’s business update on Monday night.
Most of the new demand in the last quarter came from the government and related sectors, representing around 73 percent of the net leasable area contracted. Jefferies analyst Krishna Guha wrote: “We believe that the demand was mainly related to the storage of commodities and / or related to healthcare.”
Despite the higher occupancy rate, its overall rental reversals turned negative to an average of -2.3 percent for renewed leases in the last quarter, dragged down by Singapore properties, although this remained in line with guidance. said Maybank KE.
Still, management has reiterated that it expects to achieve low single-digit positive rent reversals by fiscal 2020.
Maybank KE is optimistic about A-Reit’s rental growth prospects, as its business parks remain under-rented and “should deliver a stronger, single-digit reversal to the fourth quarter of 2020,” according to Mr. Chua.
But CGS-CIMB noted that the leasing environment may remain challenging as tenants reassess or suspend their expansion plans.
Jefferies said the manager will work closely with the tenants, which likely indicates a focus on occupancy and some rental support.
Meanwhile, DBS Group Research has a “call” option on the counter with a price target of S $ 4.00, which is a 32 percent increase based on Monday’s closing price.
DBS said in a note Tuesday morning that A-Reit’s “well diversified” portfolio makes up for the challenging outlook.
In his business update, the A-Reit manager had said that the trust’s client base comprised more than 1,450 tenants in more than 20 industries, with no single property accounting for more than 4.5 percent of its gross monthly income.
Units of A-Reit were trading at S $ 3.08 as of noon on Tuesday, an increase of S $ 0.05 or 1.7 percent.
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