Analysts like CapitaLand Ascendas REIT’s defensive attributes; Maybank upgrades to ‘buy’

The analysts' target prices range from $2.65 to $3.06.

Analysts are positive on CapitaLand Ascendas REIT A17u’s (CLAR) latest set of results for the 3QFY2023 ended Sept 30.

The REIT’s portfolio occupancy stood at 94.5% as at Sept 30 with a positive portfolio rental reversion of 10.2%. The REIT’s leverage stood at 37.2% for the period.

Maybank Securities’ Krishna Guha was the most upbeat as he upgrades his call to “buy” from “hold”.

In his Oct 30 report, Guha sees CLAR as a “safe harbour” as its 3QFY2023 updates reveal steady operations, positive reversions and higher portfolio occupancy albeit mitigated by higher gearing and a lower interest coverage ratio (ICR).

“While our concerns about business park supply and operating performance of overseas assets remain, we upgrade CLAR to ‘buy’ from ‘hold’ for its defensive characteristics, exposure to hi-value, knowledge industries and reasonable valuation versus [its] peers and history,” he writes. “CLAR should benefit from any pick-up in local hi-end manufacturing/research and development or R&D.”

To this end, the analyst has raised his distribution per unit (DPU) estimates by 1% after factoring in better-than-expected reversions. That said, his target price remains unchanged at $2.65 as he has applied a higher discount rate. His target price is also based on a forwarded valuation base of FY2024.

CGS-CIMB Research’s Lock Mun Yee and Natalie Ong have kept their “add” call with an unchanged target price of $3.06 due to the REIT’s resilient operations.

“We continue to like CLAR for its diversified and resilient portfolio and healthy balance sheet,” they write, noting that the progressive completion of CLAR’s ongoing asset enhancement initiatives (AEI) from 4QFY2023 to 1QFY2026 should drive the REIT’s portfolio returns in the medium-term. At present, CLAR has $600 million worth of ongoing AEIs, 91% of which are in Singapore.

To Lock and Ong, potential catalysts include faster-than-expected global recovery and accretive new acquisitions. Downside risks include a protracted economic downturn that could adversely impact its ability to price rents for positive reversions.

Citi Research’s Brandon Lee has also kept his “buy” call on CLAR with an unchanged target price of $3.02.

“CLAR’s 3QFY2023 business updates continued to paint a healthy operational landscape of Singapore’s industrial sector (62% of assets under management or AUM), evidenced by improved occupancy and healthy rent reversions (albeit slowing q-o-q),” he writes.

“We expect the positive trend to persist over the next six to 12 months in view of high pre-commitment of 85/72% for upcoming supply in FY2023/FY2024,” he adds.

In his report on Oct 27, Lee also noted that CLAR outperformed the Singapore REIT (S-REIT) sector, with its 8% decline year-to-date (ytd) compared to the sector’s 15% decline over the same period.

Lee’s estimates have valued CLAR’s P/B at 1.08x with FY2023 and FY2024 yields of 6.2% and 6.4% respectively.

As at 12.04pm, units in CLAR are trading flat at $2.60.

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