Thursday, July 11, 2013

Ascendas REIT: Under-rated industrial blue chip (OCBC)

Ascendas REIT:
Fair value S$2.45
add: 12m dividend forecast S$0.140
versus: Current price S$2.21

Under-rated industrial blue chip
• Value emerges amid recent sell-off
• DPU and book value to remain stable
• Completed investments to add to income

We are turning positive on Ascendas REIT (A-REIT). Its unit price has fallen by 22.7% from its peak of S$2.86 on 15 Apr, due partly to concerns on an early tapering of US Federal Reserve’s quantitative easing programme and an accompanying hike in interest rates.
Based on our analysis on interest rates, however, we believe that the impact on A-REIT’s DPU and book value is likely to be limited, as a considerable 74.8% of its total debt is fixed and the weighted average term of debt is a long 3.9 years. At present, A-REIT is trading at 1.14x P/B, even lower than some of its peers’ P/B ratios in the industrial REIT space, which are hovering around the 1.2x mark. In addition, A-REIT’s forward DPU yield of 7.2% is comparable to the subsector average yield of 7.5%. This is despite the fact that A-REIT is the largest Singapore-listed industrial landlord by market cap and portfolio size. We revise our fair value from S$2.63 to S$2.45 to reflect current higher risk-free rates but upgrade A-REIT from Hold to BUY on attractive upside potential.

Valuations looking compelling now
We are turning positive on Ascendas REIT (A-REIT). Its unit price has fallen by 22.7% from its peak of S$2.86 on 15 Apr (FTSE ST REIT Index: -14.9%), due partly to concerns on an early tapering of US Federal Reserve’s quantitative easing programme and accompanying hike in interest rates. At present, A-REIT is trading at 1.14x P/B, even lower than some of its peers’ P/B ratios in the industrial REIT space, which are hovering around the 1.2x mark. In addition, A-REIT’s forward DPU yield of 7.2% is comparable to the subsector average yield of 7.5%. This is despite the fact that A-REIT is the largest Singapore-listed industrial landlord by market cap and portfolio size (102 properties diversified across all property types), which should trade at a premium to its counterparts in our view.

Limited impact on DPU and book value
Based on our analysis on interest rates, we believe that the impact on A-REIT’s DPU and book value is likely to be limited, as a considerable 74.8% of its total debt is fixed and the weighted average term of debt is a long 3.9 years. Specifically, we estimate that a 1ppt increase in interest costs may likely lead to a 1.5% drop in our FY13F DPU – still within our comfortable range. We also observe that the cap rates for A-REIT’s portfolio has been tracking around circa 6.6%-7.4%, or at a relatively tight spread of 80bps, over 2008-12 despite the credit crunch. Hence, we believe that A-REIT’s asset values are likely to remain largely stable even if the rates face upward pressures.

Upgrade to BUY
A-REIT’s DPU is backed by healthy leasing demand and rental rates (positive rental reversions likely to persist in FY14, albeit at slower pace). A number of A-REIT’s committed investments are also expected to complete within the year, and will contribute positively to its FY14 rental income. We revise our fair value from S$2.63 to S$2.45 to reflect current higher risk-free rates but upgrade A-REIT from Hold to BUY on attractive upside potential.



Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 09/07/13

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