KGI: Ascendas REIT (AREIT SP) – 1H22 results to see positive rental reversions and inorganic growth
alanyeo
BUY Entry 2.97 – Target – 3.17 Stop Loss – 2.86
Ascendas Reit (AREIT) is Singapore’s first and largest listed Business Space and Industrial Real Estate Investment Trust (REIT). As at 31 March 2022, it owns 221 properties across three key segments, namely, 1) Business Space and Life Science, 2) Logistics and 3) Industrial and Data Centres. Ascendas Reit’s multi-asset portfolio is anchored by well-located quality properties across developed markets. 95 properties are located in Singapore, 36 properties in Australia, 41 properties in the United States and 49 properties in the United Kingdom/Europe. These properties host a customer base of more than 1,600 international and local companies from a wide range of industries and activities, including data centres, information technology, engineering, logistics & supply chain management, biomedical sciences, financial services (backroom office support), electronics, government and other manufacturing and services industries.
JTC 2Q22 report implies continued strength in industrial rents. JTC’s 2Q22 market report showed that prices (+1.5% QoQ, +5.2% YoY) and rents (+1.5% QoQ, +3.4% YoY) of Singapore industrial spaces continued to climb for a 7th straight quarter. This was further supported by a creeping up in occupancy rates (+0.2ppt QoQ, -0.2ppt YoY) after dipping in 1Q22. JTC noted that the strong manufacturing performance, particularly in electronics and precision engineering segments, helped to drive demand for factories during the period.
Stable rental reversions and acquisitions to mitigate divestments. AREIT’s 1H22 results should be boosted by inorganic growth after it acquired ~S$2.4bn of assets since 2021 (completed acquisition of 2 Australian properties in 1Q22). The completion of S$23m of AEIs during the year should also see an uplift to performance. AREIT had reported positive rental reversions of 4.5% in 2021 and 4.6% in 1Q22 and could see such a trend continue for the rest of the year. Notably, management had guided for positive low single-digit reversion in 2022 during its 1Q22 business update. Nonetheless, growth could be pared by S$248m worth of divestments, which were completed in 2021.
Stable growth expected in FY22F financials, likely undervalued. The Street currently has 14/4/0 BUY/HOLD/SELL ratings and an average TP of S$3.23. Based on consensus estimates, FY22F gross revenue/NPI should pick up by 6.1%/5.7% YoY to S$1.3bn/S$973.4m respectively. In line with this, the street is expecting FY22F DPU to expand 4.9%YoY to 16¢ (FY21: 15.3¢) implying a fairly attractive yield of 5.4%. At current prices, AREIT would trade at 1.2x P/B almost 1sd away from its 2-year average of 1.3x. AREIT is due to announce 1H22 results on 2 August after trading closes.
