Brokers’ take: Analysts keep ‘buy’ call on Capitaland Ascendas Reit, but lower target prices

DESPITE maintaining their “buy” calls, analysts have lowered their target prices for Capitaland Ascendas Reit (Clar), citing higher financing costs and growing interest rates.

DBS Group Research lowered their target from S$3.65 to S$3.40 with a forecasted FY2022 distribution per unit (DPU) of S$0.157, assuming a weighted average cost of capital (WACC) of 6.4 per cent at a risk free rate of 3.5 per cent. Meanwhile, RHB lowered their target from S$3.60 to S$3.15, with a forecasted DPU of S$0.16 for the same year.

Both brokerages are expecting the Reit to face higher financing costs in the next two years, with loans of more than S$1.3 billion maturing in FY2022 and FY2023. However, they also noted that this will be mitigated by having 78 per cent of its loans hedged to fixed rates.

The implementation of higher service charges for its Singapore leases in October 2022 will also further mitigate rising utility charges and inflationary cost pressures, said RHB analyst Vijay Natarajan on Tuesday (Nov 1).

Clar’s acquisitions totaling S$520 million for the year were viewed positively by analysts. Natarajan pointed to the Reit’s acquisitions of a cold storage logistics facility at 1 Buroh Lane and high-tech campus Philips Apac Centre as a result of its “relatively healthy gearing”.

Analysts from both DBS and RHB also remained optimistic about the Reit’s portfolio occupancy, which has increased 2.8 per cent from a year ago, to 94.5 per cent. The Reit had on Monday posted a positive rental reversion of 5.4 per cent for lease renewals in Q3 ended September.

DBS also pointed to Clar’s “myriad of structural tailwinds” and rejuvenation of its portfolio through asset enhancement initiatives as factors that could drive earnings and capital values higher in the longer term.

Noting Clar’s projected forward yield of 6 per cent, DBS commented that valuations looked attractive at a 1.1 times price-to-book value multiple, or two standard deviations below Clar’s five-year average.

“Combined with its acquisitions over the past year, we expect Clar to report a 3 per cent growth in DPU in FY2022,” added its analysts.

SEE ALSO

Capitaland Ascendas Reit posts 5.4% rental reversion in Q3

CapitaLand Ascendas Reit targets further overseas expansion for greater resilience

Units of Clar dipped by 0.4 per cent or S$0.01 to S$2.61 as at the midday trading break on Tuesday.