Focus on value-add strategy
- Portfolio of new economy assets have proved to be resilient with high occupancy rates and sustained positive rental reversions
- Full-year contribution from the S$2.1bn in investments will drive DPU growth of c.4.6% in FY22
- More redevelopment and value addition opportunities within its portfolio will drive earnings growth
- Maintain BUY with a revised TP of S$3.65
Investment Thesis
Attractively valued relative to other large-cap peers. A-REIT currently offers an attractive c.5.7% yield, which is among the highest compared to its other larger cap industrial S-REIT peers. Having acquired more than S$2.1bn in FY21, A-REIT is on track to deliver DPU growth of c.4.6% in FY22.
Multiple structural tailwinds in place. We believe that investors have neglected A-REIT’s myriad of structural tailwinds from e-commerce, datacentres, and office decentralisation, which would drive earnings and capital values higher in the longer term. Its proactive rejuvenation of its portfolio to add value to older properties and tap on unutilised plot ratioss will create a further upside to earnings.
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 redevelopment of 1 Science Park Drive together with its Sponsor paves the way for c.S$5.6bn in gross development value to be unlocked from its assets at Science Parks 1 and 2.
Valuation:
Our DCF-based TP is lowered to S$3.65, based on a WACC of 6.1% with a higher assumed risk-free rate of 2.5%.
Where we differ:
Redevelopment upside. We believe that investors have not priced the NAV uplift from the redevelopment of its other 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.