Is Ascendas REIT worth ‘buying’ now?
Shares of A-REIT, Singapore’s most valuable REIT, have been experiencing downside pressure. Is now a good time to invest in the stock?
- A-REIT shares are down 10% in the last two months
- Analysts see potential stock upside of 12% in the next 12 months
- Maybank researchers foresee DPU growing 2.1% in fiscal 2020
Shares of Ascendas Real Estate Investment Trust (A-REIT) are down by over 10% since the start of July 2020.
Singapore’s largest REIT traded at S$3.21 a share on Wednesday 16 September 2020 on the IG platform. This is the stock’s lowest price level in nearly three months.
With share price still largely compressed, is now a good time to accumulate the stock?
Where do analysts stand on A-REIT?
According to the latest analyst ratings, A-REIT appears to be a firm ‘buy’.
Fifteen out of 20 brokers polled by Bloomberg rated the stock a ‘buy’ as of 16 September. They also gave an average 12-month share price target of S$3.65, which represents a return potential of 12%.
The latest of these ratings came from DBS and Maybank analysts, who gave the stock equal ‘buy’ calls and price targets of S$4.
DBS analysts wrote on 15 September that a rebound in markets – fuelled by liquidity infusion and an extended period of low interest rates – has led to a gradual reopening of the Singapore REIT perpetual securities market.
A-REIT was one of three trusts that issued perpetual securities in the third quarter of 2020. It successfully priced S$300 million of green subordinated securities on 10 September – the first such issuance in Asia.
DBS estimated that the issuance of the new perpetual security will result in savings of close to S$5 million for A-REIT going forward, representing roughly 1% of its distributable income.
While not material, the funds raised will go towards limiting downside risks on earnings while creating more buffer for the company to manoeuvre the fragile economic outlook, the analysts noted.
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A-REIT’s DPU to grow over 2% in 2020 and 2021
Maybank analysts also like industrial trusts like A-REIT for their ‘improving distribution per unit (DPU) visibility’.
‘DPUs for industrial REITs were relatively resilient in 1H20 (first half of 2020) amid the pandemic; visibility improved as vacancies compressed further on the back of strong leasing, especially for logistics and business park space,’ the analysts wrote.
They added that they continue to favour A-REIT for ‘its scale and trading liquidity as the largest S-REIT, and its concentrated Singapore business parks/high-specs portfolio’.
They also expect stronger rental reversions – especially in Singapore – to support the company’s DPU recovery. Its strong balance sheet at 36.1% leverage suggest DPU upside from its sponsor’s Singapore business park deal pipeline and further overseas diversification.
As such, they forecasted that A-REIT’s FY2020 and FY2021 DPU will increase by 2.1% and 2.6% respectively.
A-REIT shares rose 1.56% on Thursday 17 September 2020 morning, and last traded at S$3.26 each.
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