Ascendas Reit’s DPU could grow over 6% this year, DBS and RHB say

• Ascendas Reit (SGX: A17U) share price gained 1.6% to hit S$3.15 per share
• DPU rose 27.8% to S$0.14688 for 2020
• Distributions to unitholders likely to increase in the coming years, analysts believe
• Rental income may grow at a slower pace, after strong reversions last year
• Trade AREIT, long or short, with an IG account today

Is AREIT trading at attractive valuations?

Ascendas Real Estate Investment Trust (AREIT) ‘remains one of the most defensive industrial real estate investment trusts with a well-diversified portfolio across mainly business parks and logistics’, wrote RHB analyst Vijay Natarajan.

Following its full-year financial results, he stayed ‘neutral’ on AREIT on Wednesday but raised his target price to S$3.15, from S$3.00 previously.

Meanwhile, DBS Group analysts maintained their ‘buy’ call with a target price of S$4.00. They believe that ‘investors have neglected AREIT’s myriad of structural tailwinds from e-commerce and office decentralisation’.

Also, investors also may not have priced in the possibility of redevelopment of its science parks to newer specifications and higher plot ratios, which will unlock its net asset value (NAV) upside, the DBS research team wrote.

DBS found the trust’s valuations ‘attractive’, as its units are now cheaper than its large-cap industrial peers, which are trading at 5.2% forward yield and 1.4x price to NAV.

RHB likewise said AREIT’s share price has underperformed over the last three months, primarily due to an overhang from its large equity fundraising and pending acquisition. But despite the positives, RHB thinks the valuation is ‘not compelling’, with the stock trading at 1.4x price to book value and a dividend yield of 5%.

AREIT was trading 1.6% higher at S$3.15 as of 10:55 SGT on Wednesday, with over 4.5 million units changing hands.

Analysts foresee higher distributions

Revenue in the second half of 2020 was up 13% year-on-year to S$528.2 million, while net property income grew 8%. DBS said the earnings have been resilient despite the Covid-19 pandemic.

AREIT’s total distribution per unit (DPU) was S$0.14688 for 2020, up 27.8% from the S$0.1149 in the year prior.

The DBS research team expects AREIT to post a 7.7% compound annual growth rate over 2020-2023 in its DPU.

RHB forecast a 6% year-on-year growth in DPU for 2021, in the absence of rental rebates and driven by accretive acquisitions of S$1.5 billion in assets and the anticipated purchase of S$1 billion in European data centres.

Muted rental increases likely

Rental growth for Ascendas REIT’s portfolio in Singapore, Australia, UK and US will probably ease to single-digit percentage increases in 2021, said the trust’s manager on Tuesday evening.

In 2020, its properties in Australia and US recorded strong rental reversions of 14% and 16.6% respectively. Meanwhile, the Singapore portfolio’s average rent reversion was 3.1%.

DBS analysts expect most of AREIT’s tenants in Australia and the US to renew their leases, with demand in San Diego and Raleigh to be driven by the technology, life sciences and gaming sectors.

How to trade REITs with IG

Are you feeling bullish or bearish on Singapore REIT stocks?

Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform in a few easy steps:

1. Create a live or demo IG Trading Account, or log in to your existing account
2. Enter <company name (i.e. Ascendas Reit)> in the search bar and select the instrument
3. Choose your position size
4. Click on ‘buy’ or ‘sell’ in the deal ticket
5. Confirm the trade