Improving operating metrics

  • Positive rental reversions and higher portfolio occupancy in 3Q21.
  • Strong balance sheet with aggregate leverage at 37.4% at end-3Q21 provides room for inorganic growth.
  • Reiterate Add with an unchanged DDM-based TP of S$3.31.

3Q21 business update

In its 3Q21 business update, AREIT reported an improvement in portfolio occupancy to 91.7%, with higher take-up in Singapore, Australia and UK/Europe, partly offset by a slight drag in the US. Rental reversion averaged +3.7% in 3Q and +5.4% YTD. Aggregate leverage stood at 37.4% at end-3Q21, translating to an available debt headroom of S$4.2bn, based on a 50% limit, to pursue inorganic growth opportunities. AREIT has S$389.3m worth of asset enhancement initiatives currently underway in
Singapore and Australia, scheduled to complete between 4Q21 and 4Q23.

Improving operating metrics in Singapore

Singapore portfolio occupancy rose to 88.5% with higher occupancy at 21 Changi South Ave 2, Techplace I and 9 Woodlands Terrace. Demand came from bio-med, logistics and supply chain management, engineering and lifestyle, retail consumer products segments. It completed the development of Grab HQ in Singapore at end-Jul 21. Singapore rental reversion averaged +3.6% and was positive across all segments including integrated developments, amenities and retail. AREIT has a remaining 3.5% and 23.9% of Singapore leases to be renewed in 4Q21F and FY22F, respectively. AREIT granted 0.5 months of rental rebates amounting to S$0.7m to support F&B and retail tenants in Singapore affected by P2 Heightened Alert. No further details have been shared on the redevelopment of TUV SUD PSB Building in Singapore.

Long lease expiries and high occupancy overseas provide stability

There were no lease renewals within the Australia portfolio in 3Q21 but occupancy improved to 97.5% with a new lease secured in a logistics property in Sydney. Meanwhile, occupancy in the US slipped to 91.4% due to lower take-up at a property in Raleigh. Nonetheless, AREIT achieved positive rental reversions of 15% for renewal leases in US portfolio in 3Q. AREIT has 12.2% and 22% of leases in Australia and US expiring in FY22F, respectively. The bulk of these are in Sydney and San Diego, USA and we anticipate the trust to continue achieving positive rental reversions going forward.

Reiterate Add rating

We leave our FY21-23F DPU estimates unchanged and retain our DDM-based TP of S$3.31. We continue to like AREIT for its diversified and resilient portfolio and strong inorganic growth visibility. Potential catalysts include faster-than-expected global
recovery and accretive new acquisitions. Downside risks include a protracted economic downturn.