Look no further than its own backyard

  • Science Park redevelopment is a c.S$5.6bn GDV opportunity for A-REIT, driving NAV higher by up to 24% over time
  • Redevelopment of TUV SUD PSB Building to kickstart unlocking of hidden value
  • Pivot to resilient and growth new economy assets – contributing 85% of asset value, is not yet priced in
  • Attractive yield, maintain BUY and TP of S$4.00

Investment Thesis:

Attractively valued relative to other large-cap peers
. A-REIT offers an attractive c.5.6% yield, which is more than 100bps higher than other larger cap industrial S-REIT peers. A-REIT is poised to “catch-up” given similar DPU CAGR of 5.0% over FY20-23F.

Multiple structural tailwinds in place.
 We believe that investors have neglected A-REIT’s myriad of structural tailwinds from e-commerce, data-centers and office decentralisation, which would drive earnings and capital values higher in the longer term.

Unlocking value from rejuvenation of its Science Park assets. 
While A-REIT can tap its Sponsor for an attractive pipeline of new economy properties, there is significant value from the potential redevelopment of its Science Park assets. The S$5.6bn gross development value (GDV) opportunity could lift NAV by up to 24%. We believe the market will reward A-REIT when this strategy starts to unfold.

Valuation:
Our DCF-based TP is maintained at S$4.00 as we assume WACC of 5.9% (risk-free rate of 2.0%).

Where we differ:
Redevelopment upside. 
We believe that investors have not priced the NAV uplift from the redevelopment of its Science Park assets into properties with higher specifications and higher plot ratios.

Key Risks to Our View:
Interest-rate risk.
 An increase in lending rates will negatively impact dividend distributions.