Healthy rental reversions in 1Q
? Slight qoq dip in portfolio occupancy to 92.6% due to non-renewals in
Australia.
? Higher qoq average rental reversions of +4.6% is underpinned by stronger
reversions in USA and Australia.
? Reiterate Add rating with an unchanged TP of S$3.20.
1Q22 business update
In its 1Q22 business update, AREIT reported a slight qoq dip in portfolio occupancy to
92.6%, mainly on the back of lower occupancy in Australia and USA, while Singapore
remained stable. Rental reversion averaged +4.6% (4Q21: +2.9%). It also completed the
purchase of 2 logistics properties in Australia for S$90.2m and 1 redevelopment asset in
Singapore for S$38.2m in 1Q. Aggregate leverage stood at 36.8% at end-1Q22, translating
to an available debt headroom of S$4.6bn, based on a 50% limit, to pursue inorganic
growth opportunities. An estimated 79.1% of its borrowings are in fixed rates; management
guided that a 20bp change in average funding cost would only impact FY21 DPU by 0.4%.
Stable Singapore portfolio, positive reversion of +3.9% in 1Q
Singapore portfolio occupancy was relatively stable qoq at 90.0% in 1Q. Meanwhile, it
achieved a +3.9% rental reversion, led by uplifts at business and science parks, industrial
and data centres, as well as logistics segments. New demand for space came from the
lifestyle, retail and consumer products, electronics and distributors and trading segments.
AREIT has a remaining 19% and 23.3% of leases in Singapore to be renewed in 9M22F
and FY23F. These are mainly business and science parks and industrial and data centre
spaces. In terms of redevelopment opportunities, AREIT has a pipeline of S$400.8m worth
of enhancement projects, to be gradually completed between 2Q22-2Q25F.
Robust rental reversions in Australia and US portfolio
Occupancy for Australia portfolio dipped to 96.8% due to 2 non-renewals. That said, AREIT
enjoyed positive reversions of 16.5% for its Australia portfolio in 1Q. AREIT has 8.5% and
23.3% of leases due to be re-contracted in 9M22F and FY23F, the bulk of which are in
Sydney and Brisbane. US portfolio occupancy slipped slightly to 94% in 1Q even as its
business parks & logistics space enjoyed a +12.2%/+26.4% rental reversion in 1Q. There
are 18.3%/10.3% of US leases to be renewed for 9M22F/FY23F, largely coming from its
San Diego, Portland and Raleigh properties. UK/Europe occupancy grew slightly to 96.7%.
While there were no lease expiries during the quarter, there is a remaining 7.2% of expiries
to be re-contracted in UK/Europe for 9M22F.
Reiterate Add rating
We leave our FY22-24F DPU estimates unchanged and retain our DDM-based TP at
S$3.20. We continue to like AREIT for its diversified and resilient portfolio and healthy
balance sheet. Potential catalysts include faster-than-expected global recovery and
accretive new acquisitions. Downside risks include a protracted economic downturn.