Ascendas REIT (AREIT): After the 9% correction in AREIT’s price since mid-April 2015 (following the 4Q FY15 results announcement), AREIT units seems more fairly valued now.
After stripping away the impact from acquisitions and development properties for FY15, the underlying performance of the portfolio was subdued across all segments, judging solely from the YoY gross income growth by property. One major factor impeding growth was the conversion of master-lease properties into multi-tenanted buildings. This negative trend could be seen clearly in the logistics & distribution centres segment, which suffered a 6% YoY decline in NPI, arising from higher expenses and several properties with low occupancy rates (19-70%) that were 100% occupied the previous year.
Management’s strategy is increasing exposure and focus on higher-value segments such as business & science park properties and high-specification industrial properties segments, which is where most of recent AEIs were in.
Daiwa has upgraded their rating from UNDERPERFORM to HOLD with revised TP: $2.40 (prev. $2.28). Upside risk for AREIT would be the announcement of a highly DPU-accretive acquisition from its sponsor, while a downside risk could be persistently high vacancy rates in its portfolio.
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