Strength through diversification
? 2H/FY21 DPU of 7.598/15.258 Scts in line, at 49/1%/987% of our FY21 forecast.
? It saw healthy improvement in portfolio occupancy to 93.2%, and achieved positive rental reversion of 4.5% for FY21.
? Reiterate Add, with a lower DDM-based TP of S$3.20.
2H21 results highlight
AREIT reported 2H21 gross revenue of S$640.5m (+21.3 yoy) and net property income of S$475.2m (+22.4% yoy), underpinned by contributions from new acquisitions in Australia, US and Europe, as well as positive rental reversions. 2H21 DPU rose 2.4% yoy to 7.598 Scts, due to an expansion in units base and payment of performance fee of S$7.4m. FY21 DPU was up 3.9% to 15.258 Scts. Portfolio occupancy improved across the board, by 1.5% pts hoh to 93.2% at end-FY21 while rental reversions averaged +4.5%. Management reiterated that it expects to achieve low single-digit positive rental reversions in FY22F. Aggregate leverage stood at 35.9% at end-FY21. With a potential debt headroom of S$4.8bn, based on 50% gearing, AREIT continues to look for acquisition opportunities within its current geographic footprint. With 79.4% of its borrowings in fixed rates, AREIT guided that a 1% pt change in average funding cost would only impact DPU by 2%.
Singapore occupancy crosses 90% on robust new demand
Singapore portfolio occupancy improved to 90.2% with higher take up at Xilin Districentre A&B, Nucleos and The Alpha, thanks to new demand from IT, biomedical and chemicals sectors. It achieved a +2.9% rental reversion in FY21, led by uplifts at business spaces, hispec industrial, logistics and distribution centres; integrated developments, amenities and retail spaces stayed stable. AREIT granted S$1.8m of rental rebates to F&B/retail tenants in Singapore in FY21. It has 21.7%/25.5% of leases in Singapore to be renewed in FY22F/ FY23F, largely at business and science parks, and hi-spec industrial spaces.
Higher take up amid positive reversions overseas
Within AREIT’s overseas portfolio, occupancy for its Australia portfolio improved to 99.2%. AREIT has 9.9%/21.2% of leases due to be re-contracted in FY22F/FY23F, mainly in Sydney. Inclusive of the Kansas City logistics portfolio, US occupancy grew to 94.5% with its business spaces enjoying a +24.2% rental reversion in FY21. While the US portfolio has 19.9%/9.8% of its leases expiring in FY22F/23F, management indicated that this portfolio is still under-rented at present. Most of the expiries are for properties located in San Diego, which is enjoying rising market rents. UK/Europe saw a slight slippage in occupancy to 96.7% although reversions came in at a positive 6.2%.
Reiterate Add rating
We trim our FY22-23F DPU by 2-2.1% post results. As such, our DDM-based TP declines to S$3.20. We continue to like AREIT for its diversified and resilient portfolio and healthy balance sheet. Potential re-rating catalysts include faster-than-expected global recovery and accretive new acquisitions. Downside risks include a protracted economic downturn.