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Brokers' take: OCBC, Jefferies, RHB raise their target price on Ascendas Reit

THREE broking houses have raised their target price on Ascendas Reit a day after it announced a rise in distribution per unit (DPU) to 3.91 Singapore cents for the fourth quarter.

In its analysis, OCBC Investment Research said that Ascendas' 3.3 per cent year-on-year rise in revenue to S$215.7 million, as well as its higher DPU, had met its expectations.

The broker kept its "hold" call on the stock but raised its fair value estimate to S$2.71 from S$2.69 previously.

OCBC highlighted Ascendas' new chief executive William Tay's vision of value management, value creation and value adding, which includes improving Ascendas' franchise value, identifying assets for redevelopment and incorporating smart technologies to make its assets future-ready and looking actively at new markets.

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The broker believes Europe and the US are the most likely destinations for inorganic growth beyond Ascendas' key markets of Singapore and Australia.

Broker Jefferies Singapore cited a sharp decline in occupancy, higher 10-year yield and dilutive acquisitions as possible risks for Ascendas' stock, but maintained its "buy" while raising its target price to S$2.95 from S$2.90.

Jefferies also lowered its DPU estimates by 1.7 per cent and 1 per cent respectively for FY2019 and FY2020 , mainly due to the "possibility of weaker occupancy in Australia and higher interest costs", offset by higher assumed occupancy and rental reversion in Singapore.

RHB Research similarly kept its 'buy' advice to investors, and also raised its target price to S$2.95, from S$2.90 before.

"Looking ahead, we expect its portfolio to post a rental reversion of 2-5 per cent for FY 2019, aided by a positive market outlook. Industrial demand continues to see improvements, with Singapore's portfolio occupancy at 89.5 per cent," RHB said.

It also noted Ascendas has headroom of over S$1 billion for acquisitions, and around 72 per cent of its borrowings are hedged for an average term of 3.2 years.

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