Ascendas REIT - OCBC Investment 2019-11-15: Value Has Emerged

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U) | SGinvestors.io ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Ascendas REIT - Value Has Emerged




Share price has overreacted, in our view

  • Ascendas REIT's share price has dipped 8.5% (as at closing price on 14 Nov) since it announced its proposed acquisition of a portfolio of 28 business park properties in the US and two business park/science park properties in Singapore from its sponsor CapitaLand. See Ascendas REIT Announcements; See report: Ascendas REIT - Building Yet Another Platform.
  • Part of this decline can be attributed to the stock trading ex-rights and ex-distribution on 8 Nov, coupled with the sudden sharp correction in the S-REITs sector on the same day. See S-REITs Share Price Performance.
  • Perhaps there were question marks over Ascendas REIT’s proposed equity funding structure (using rights issue instead of placement plus preferential offering), but the large pullback in share price leads us to believe that value has emerged for the stock. Our forecasts have already taken into account the rights issue and contribution from the proposed acquisition.
  • Ascendas REIT is currently trading at distribution yields of 5.6% for FY20F and 5.7% for FY21F, which we deem attractive relative to its peers. See Ascendas REIT Dividend History.


Stable operations

  • As a recap, Ascendas REIT recently reported a 2.3% y-o-y increase in its 2QFY19 DPU to 3.978 S cents. Rental reversions were robust at +4.0% its Singapore portfolio. Besides Integrated Development, Amenities & Retail which was flat, rental uplifts came in strong for Logistics & Distribution Centres (+7.0%), and were also positive for Business & Science Parks (+3.9%), Light Industrial and Flatted Factories (+3.9%) and High-Specs Industrial and Data Centres (+3.1%).


More diversified portfolio and debt headroom for further inorganic growth

  • Once the acquisitions are completed, Ascendas REIT will be able to benefit from more diversified sources of income streams from four core markets, namely Singapore (72% of AUM), Australia (12%), US (10%), and UK (6%).
  • In the longer-term, the strategy for Ascendas REIT would be to have overseas assets in developed markets contribute around 30-40% of its portfolio value.
  • As pro forma aggregate leverage is expected to decline from 36.3% to 34.6% post transaction, we believe Ascendas REIT would still have sufficient debt headroom to fuel its inorganic growth ahead. We maintain our forecasts and fair value estimate of S$3.25 on Ascendas REIT. See Ascendas REIT Share Price; Ascendas REIT Target Price.





OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-11-15
SGX Stock Analyst Report BUY UPGRADE HOLD 3.250 SAME 3.250



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