Brokers' take: RHB upgrades Ascendas Reit to 'buy' on upbeat outlook

RHB has upgraded Ascendas Real Estate Investment Trust A17U (Ascendas Reit) to "buy" with a higher target price of S$3.50, on the back of a more upbeat outlook with the much-awaited Science Park redevelopment plan starting to take shape.

In a briefing following the release of results after market close on Monday, William Tay, chief executive officer and executive director of the Reit manager, said it is looking into plans to redevelop the TÜV SÜD PSB Building at Singapore Science Park 1 after the property was vacated earlier this year.

"We are happy with the non-renewal so we can proceed with the redevelopment," Mr Tay said, adding that the manager has secured preliminary approval from the authorities to increase the plot ratio at the property by some three-and-a-half times to a gross floor area of around 112,000 square metres (sq m), up from around 32,000 sq m currently.

According to Mr Tay, the redevelopment could cost "between S$800 million and S$1 billion".

The way RHB analyst Vijay Natarajan describes it, the rejuvenation of the Science Park area, which accounts for 11 per cent of Ascendas Reit's portfolio value, could be "a multi-year catalyst".

"Redevelopment plans for the Science Park assets are expected to be announced in the coming quarter, which should be an additional rerating catalyst," he said in a report on Tuesday.

RHB's new target price implies a dividend yield of close to 5 per cent and an upside of 12 per cent from Ascendas Reit's last closing price of S$3.12 on Monday.

The research house had a "neutral" recommendation on Ascendas Reit with a target price of S$3.20 previously.

The industrial and business space landlord on Monday announced a 5.4 per cent increase in its distribution per unit to 7.66 Singapore cents for the first-half ended June 30, on the back of a 18.2 per cent rise in distributable income to S$311 million.

Net property income grew 14.8 per cent to S$445.6 million, as gross revenue increased 12.4 per cent to S$586 million.

The strong H1 results, which were in line with RHB's expectations, were largely attributed to contributions from its newly acquired properties. Ascendas Reit completed S$1.72 billion worth of acquisitions during the first half, bringing the Reit's total portfolio value to S$15.90 billion.

"Operating metrics turned bullish with occupancy improvements, strong positive rent reversion and a slightly more optimistic outlook," said Mr Natarajan.

Meanwhile, CGS-CIMB is maintaining its "add" call on Ascendas Reit with an unchanged target price of S$3.31.

"We continue to like Ascendas Reit for its diversified and resilient portfolio and strong inorganic growth visibility," analysts Lock Mun Yee and Eing Kar Mei said in a company note on Monday.

Units of Ascendas Reit traded flat at S$3.12 before the midday break on Tuesday.

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