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OCBC: A-REIT Revises Portfolio, Expect 6.8% Yield
Aspire, Hot Picks | 03 April 2015
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By: Raymond Leung
Articles (142) Profile

Analysts' updates on Ascendas Real Estate Inv Trust as at 02/04/2015

Earlier this week, Ascendas REIT (A-REIT) repositioned its portfolio with a series of both asset acquisition and disposal. However, there are mixed feelings towards the trust from the analysts.

Kendall Acquisition

Source: The Kendall, A-REIT Acquisition Presentation

A-REIT will be acquiring The Kendall, a 6-storey multi-tenanted building located within the Singapore Science Park II. The building mainly caters to companies involved in research and development.

This will be the 27th property that the trust has acquired from its sponsor, the Ascendas Group. The total purchase consideration for this property is $113.7 million and includs all transaction costs. The Kendall has an occupancy rate of 93.2 percent and a remaining land tenure of 64 years.

It is expected to provide a net property income yield of 6.8 percent compared to the FY15 forecast of 6.3 percent for its existing portfolio. This transaction can thus be seen as yield accretive.

Disposing Senoko Way

More recently, A-REIT announced the disposal of its 26 Senoko Way property for a consideration sum of $24.8 million to JTC Corporation. The consideration sum represents a 60 percent premium over the original acquisition of $15.5 million. The property still has remaining land tenure of 36 years but is currently unoccupied.

Disposal of this property is in line with the manager’s strategy of divesting properties that has reached its potential. This is to recycle the capital for acquiring new properties to boost its future growth. Proceeds from the sale will be used for committed investments, repayment of debts, working capital and/or make distribution to unit holders of the trust.

Mixed Sentiments
The potential increase of interest rates by the Federal Reserve is the main factor for the mixed sentiments. Borrowing cost for REITs is expected to rise and bring about cost pressures. This is mainly due to the fact that REITs are generally more highly leveraged than regular companies.

Furthermore, the rise in interest rates would mean a rise in riskless rates which will make the yield of REITs less attractive to investors.

Analysts Thoughts
Analysts from OCBC Research maintained their mixed feelings towards A-REIT as they gave the counter a “Hold” call. Based on the target price of $2.58, A-REIT has a potential downside of 6.2 percent.

Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.

Ascendas REIT  3.130 +0.02 +0.64%   
Business: Co invests in the real estate markets of Singapore and Australia.

Insight: Apr-19, FY19 gross revenue and NPI inched up 2.8% ... Read More


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