Analysts are generally positive about Ascendas REIT (A-REIT) in light of a stable Singapore portfolio coupled with robust rental reversions in their Australia and US portfolios.
In its 1QFY2022 ended March business update, A-REIT reported a slight q-o-q dip in portfolio occupancy to 92.6%, with rental reversion on average up 4.6%.
During the quarter, A-REIT also completed the purchase of two logistics properties in Australia for $90.2 million and one redevelopment asset in Singapore for $38.2 million in 1QFY2022.
As at end-March, A-REIT’s aggregate leverage stood at 36.8%, translating to an available debt headroom of $4.6 billion, based on a 50% limit, to pursue inorganic growth opportunities.
An estimated 79.1% of its borrowings are in fixed rates, where management guided that a 20 basis point (bps) change in average funding cost would only impact FY2021 distribution per unit (DPU) by 0.4%.
Following A-REIT’s update, CGS-CIMB Research analyst Lock Mun Yee has kept her “add” call with an unchanged target price of $3.20.
The analyst’s FY2022-FY2024 DPU estimates remain unchanged. “We continue to like A-REIT for its diversified and resilient portfolio and healthy balance sheet,” says Lock.
Some potential catalysts to the REIT’s unit price include faster-than-expected global recovery and accretive new acquisitions, in Lock’s view.
With regards to downside risks, the analyst considers possible protracted economic downturn.
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RHB Group Research analyst Vijay Natarajan has kept his “buy” rating on A-REIT with a target price of $3.60, with Natarajan keeping his earnings estimates.
“We attribute the share price underperformance mainly to investors switching to growth and reopening plays for office and hospitality REITs respectively,” says Natarajan.
The analyst believes however that AREIT’s well-diversified and resilient industrial portfolio, with redevelopment potential and a strong 6% yield profile, warrants a relook.
Natarajan also sees a manageable impact from rising interest rates and utilities. This is in light of how utility charges for common areas borne by the REIT account for approximately 8% of opex, with this expected to rise by 50% this year from higher electricity tariffs.
“NPI margins are therefore expected to see a 1% squeeze, which we believe can be offset by rent growth,” explains the analyst.
In addition, A-REIT has also been installing solar panels in its buildings to generate electricity, and as part of its green initiatives. Currently, about eight of A-REIT’s 96 assets in Singapore currently have solar panels installed, with another 11 planned this year.
Moreover, about 79% of its debt is hedged with every 20bps rate increase resulting in a modest 0.4% impact.
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Natarajan also notes room for A-REIT to achieve greater value from redevelopments. Management had previously noted that it sees potential to redevelop some of its light industrial assets in north eastern Singapore into data centres, especially with the anticipated lifting of Singapore’s Data Centre moratorium later this year.
“There is also medium-term potential to unlock value from the gradual redevelopment of its science park assets which accounts for approximately 10% of its portfolio value,” writes Natarajan.
The analyst believes that the acquisition pace is likely to slow down to approximately $1 billion this year, on the back of rising rates, with the focus mainly on logistics, the data centre, and tech campuses.
Gearing is at 36.8%, presenting $1 billion-$2 billion debt headroom.
Overall, Natarajan finds that the industrial segment’s outlook remains relatively resilient across its markets, despite rising global uncertainties and inflationary pressures.
As at 12.46pm, units in Ascendas REIT are trading at 2 cents down or 0.71% lower at $2.80 at a FY2022 P/B ratio of 1.18x and dividend yield of 5.7% according to RHB’s estimates.
Photo: A-REIT
