3Q21: Outlook Brightens, Redevelopment Opportunities Beckon

AREIT provided a positive business update for 3Q21 as the outlook brightens. It achieved positive rental reversion of 3.7% driven by Singapore and the US. Occupancies for Singapore and Australia edged higher by 0.6ppt and 1.7ppt qoq respectively to 88.5% and 97.5%. Having completed the development of Grab HQ, AREIT could move on to redevelop TÜV SÜD PSB Building at Science Park I. AREIT provides a resilient 2022 distribution yield of 5.5%. Maintain BUY. Target price: S$3.83.

WHAT’S NEW

• Ascendas REIT (AREIT) provided business update for 3Q21.

Positive rental reversion driven by Singapore and the US. AREIT achieved positive rental reversion of 3.7% in 3Q21 (1Q21: 3%, 2Q21: 8.9%). In Singapore, business space, high-specifications industrial buildings & data centres and logistics & distribution centres provided healthy reversions of +3.7%, +5.1% and +4.6% respectively. New demand was derived mainly from biomedical, logistics & supply chain management and engineering, which accounted for 21%, 18% and 16% of new contribution to gross rental income. Business parks in the US registered strong reversions of +15% driven by Portland. Management maintains guidance of positive low single-digit rental reversions for 2021.

Portfolio occupancy improved by 0.4ppt qoq to 91.7% in 3Q21. In Singapore, occupancy improved by 0.6ppt qoq to 88.5% due to higher occupancy at 21 Changi South Ave 2, Techplace I and 8 Woodlands Terrace. In Australia, occupancy improved 1.7ppt qoq to 97.5% due to a new lease for 1 Distribution Place, a logistics property located in Sydney. Occupancy for the US dropped 1.4ppt qoq to 91.4% due to a tenant downsizing at Perimeter Three, a six-story business park property at Perimeter Park in Raleigh.

Keen to build more BTS business park properties. The built-to-suit (BTS) business park property for Grab’s headquarters was completed and handed over to Grab on 30 Jul 21. It comprises two tower blocks (nine storeys and four storeys) with NLA of 455,420sf connected by a sky bridge. It is located at one-north and is a one-minute drive to Ayer Rajah Expressway and a 10 minutes’ drive to the Central Business District. It is fully leased to Grab for 11 years with a 5-year renewal option. It provides an NPI yield of 6.0%.

Prudent capital management. AREIT’s aggregate leverage was relatively unchanged at 37.4% as of Sep 21. All-in weighted average cost of debt was stable at 2.4% and average debt maturity is healthy at 3.5 years. AREIT has debt headroom of S$4.2b based on regulatory limit on aggregate leverage of 50%. Green financing totalled S$1.2b and accounted for 18% of total borrowings.