Brokers' take: Analysts maintain 'buy' on Ascendas Reit post-H2 results with some lowering TP

SEVERAL brokerages have reiterated their "buy" calls on Ascendas Real Estate Investment Trust (Reit) A17U in reports on Tuesday (Feb 8) and Wednesday, following the Reit's H2 FY2022 financial results staying broadly in line with expectations.

However, 3 of them - DBS Group Research, CGS-CIMB and Jefferies - stated in separate reports that they have lowered their target prices (TP) for the Reit despite maintaining their calls.

DBS's TP was lowered to S$3.65 from S$4, discounted by a weighted average cost capital of 6.1 per cent and implying a target yield of 4.4 per cent and 1.6 times the price-to-net asset value ratio.

This was due to the FY2021 distribution per unit (DPU) coming in slightly below the research house's estimates, resulting in a more conservative approach by assuming a long-term borrowing cost of up to 3 per cent and risk-free rate of 2.5 per cent.

However, it still expects a DPU growth of 4.6 per cent, citing reasons like cap rate compressions continuing to drive portfolio valuation upwards, continued redevelopment generating a healthy return on investment of 6.6-6.7 per cent and new economy businesses expected to drive positive take-up and rental reversions in FY2022.

Higher take-up was also a reason for the "buy" call given by CGS-CIMB analyst Lock Mun Yee, who noted the improving occupancy in US and Australia of 94.5 per cent and 99.1 per cent respectively had resulted in an overall occupancy of 93.2 per cent. Singapore's occupancy also passed the 90 per cent threshold, she added.

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However, Lock trimmed her FY2022-2023 DPU estimates by 2-2.1 per cent after the results, causing CGS-CIMB's TP to decline to S$3.20 from S$3.31, although the brokerage continues to like the Reit for its diversified portfolio and healthy balance sheet.

Meanwhile, Jefferies analyst Krishna Guha gave the Reit a TP of S$3.25, down from the previous TP of S$3.55, as he observed that demand in Singapore remains sluggish and acquisitions "look challenging".

But he also noted that the low demand may be mitigated by the Singapore government's focus on tech and value-added industries, stable demand in Australia and US, and an e-commerce focus in the UK.

"While rising rates and green capex raise thresholds, the diversified portfolio and pivot to the new economy bode well for DPU and net asset value stability," he added.

At the same time, RHB, Maybank Securities and Citi all maintained their TPs along with their calls.

RHB analyst Vijay Natarajan, who kept his TP at S$3.60, projects that positive rental reversions will continue in low to mid-single digits amid improving occupancy. He also noted the potential of the Reit to unlock value if it redevelops its light industrial assets in Singapore into data centres, as well as medium-term potential from the redevelopment of its science park assets.

As for Maybank Securities analyst Chua Su Tye, he sees potential in Ascendas Reit's ability to scale its assets under management in its core overseas markets, as its cap rates range is wide at 4-7 per cent and is open to grow in secondary locations. His TP remained unchanged at S$3.65.

Citi analyst Brandon Lee stuck to his TP of S$3.35 as he viewed the management's willingness to enter secondary locations overseas and the presence of the sponsor pipeline in Singapore suggest that it may still be able to eke out selective transactions, despite a challenging acquisition outlook. He also considers the Reit's partial underperformance against the other Singapore Reits year-to-date as a possibly attractive buying opportunity.

Units of Ascendas Reit closed up 2.86 per cent or S$0.08 at S$2.88 on Wednesday. 

READ MORE:

• Manulife US Reit posts 1.5% increase in H2 DPU
• How a sleepy Singapore Reit crushed the market
• Spooked by rate-hike fears, S-Reit sell-off could offer opportunity to dive in