Business

Brokers’ take

Compiled by Anita Gabriel

ASCOTT RESIDENCE TRUST | HOLD

TARGET PRICE: $1.16

APRIL 19 CLOSE: $1.14

CGS CIMB Research, April 18

While first quarter is the seasonally weakest, we consider 1Q18 distribution per unit (DPU) of 1.35 cents (+15 per cent year-on-year), which formed 19 per cent of our full-year forecast, to be a slight miss.

Adjusting for the realised forex gain of $1.6 million, 1Q18 DPU would have registered a 9 per cent year-on-year improvement. Results continued to be a mixed bag with particular organic weakness in Japan, the Philippines, Vietnam and the US. China achieved healthy operating performance.

We note that Ascott Residence Trust (ART) has net gain proceeds of $56.1 million from divestment of the two Chinese properties. While $6.5 million had been distributed in 4Q17, the remaining could be used for asset enhancement initiatives or acquisition.

Assuming a 40 per cent cap on gearing, we estimate that ART has some $350 million available debt headroom. At this juncture, it is looking closer at Europe and Japan.

We reduce our FY18F-19F DPU by 3.6 per cent to 5.2 per cent to factor in the organic weakness. We also introduce our FY20F estimates.

Our DDM-based (dividend discount model) target price accordingly drops to $1.16. We highlight that we have baked in $150 million of acquisitions at 5.5 per cent net property income yield, which would contribute from FY19F onwards. That said, we note ART's more disciplined and prudent approach towards acquisitions. Our Hold call is intact given limited catalysts.

Upside risks could come from pick up in core markets; downside from higher rate hikes.

FIRST REIT | BUY

FAIR VALUE: $1.48

APRIL 19 CLOSE: $1.37

OCBC Investment Research, April 19

First Reit's (Freit) 1Q18 results were well within our expectations. We continue to reiterate our base case of two to three acquisitions in FY18 (late in the year), with each asset in the $20 million to $30 million range.

We believe that PT Siloam International Hospitals TBK's assets would be likely targets.

Nonetheless, we believe that management would still be disciplined by only making DPU-accretive acquisitions, with the initial rental yield being around the 9 per cent to 10 per cent handle.

As at March 31, only around 51 per cent of Freit's debt is on fixed rate/hedged, but we believe management is working on bringing this towards 75 per cent to 80 per cent.

Separately, there has been some concern about rising receivables, which we think could be due to tighter liquidity at the sponsor's end.

However, we believe that both management and the sponsor are confident of addressing this in the near future, as demonstrated by Freit opting not to apply the distribution reinvestment plan this quarter.

Given its triple-net master leases, Freit has clarified that the implementation of Government Regulation Number 34 of 2017 is not expected to affect it materially. We keep our assumptions and estimates unchanged, and maintain our fair value of $1.48. Freit currently trades at a FY18F yield of 6.4 per cent.

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