Furthermore, A-REIT’s 1HFY2021 distribution per unit (DPU) rose 5.4% y-o-y and 3.3% h-o-h, driven mainly by contributions from new acquisitions.
See more: Ascendas REIT sees 5.4% rise in DPU to 7.66 cents
For the 1HFY2021, A-REIT granted 0.5 months of rebate amounting to $0.7 million for F&B/retail tenants, sharply down from the $17.8 million in FY2020. A similar quantum is expected in 2HFY2021.
In addition, Natarajan says management sees an improvement in business sentiment, with 75% of the $4 million worth of rents deferred last year collected and minimal new requests for rent deferment.
Separately, he also elaborated that overall portfolio occupancy rose 0.7% q-o-q in 2QFY2021 to 91.3% with improvement seen across three of its four markets.
New industrial demand mainly stemmed from the bio medical segment in Singapore and engineering segment in Australia.
Furthermore, he observes that strong positive rent reversion of 8.9% was seen for 2QFY2021 (1H: 6.4%) with all business segments in Singapore (+3.4%) registering positive growth except for a small integrated development lease.
Meanwhile, A-REIT’s US portfolio leases saw strong +26% rent reversion driven by an under rented portfolio and tenant positioning.
Management guided for low single-digit rent reversion ahead for Singapore with slightly better rent growth expected for its overseas assets.
Back at home, Natarajan also adds that a redevelopment plan for the Science Park assets are expected to be announced in the coming quarter, which should be an additional rerating catalyst. He notes it has secured preliminary approvals from the authorities for the
redevelopment of the TÜV SÜD PSB Building.
The redevelopment will see a significant increase in plot ratio to 3.5 from 1.0, with an estimated redevelopment cost of $800 million to $1 billion.
AREIT said due to the high development cost, it is likely to undertake a JV with its sponsor, Capitaland, in redeveloping this asset. The rejuvenation of the Science Park area (11% of its portfolio value) could be a “multiyear catalyst”, Natarajan thinks, and more details on the redevelopment are expected to be announced in 4QFY2021.
Similarly, CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei are optimistic about the stock, maintaining their "add" rating and target price of $3.31.
While they largely agreed with Natarajan, they note that A-REIT has also completed the Grab HQ at one-north in July 2021, costing $181 million. Lock and Eing say contributions from this development are expected to be felt from FY2022 onwards.
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They also pointed out that occupancy for the Australia portfolio improved to 95.8%, and that there were no leases expiring in 2QFY2021, although A-REIT has 1.6% and 11.8% of leases due to be re-contracted in 2HFY2021 and FY2022.
In an Aug 4 report, Maybank Kim Eng's Chua Su Tye keeps the REIT as his "top pick", giving a "buy" rating and a target price of $3.65.
Chua notes that its fundamentals remain strong, backed by scale, rising DPU visibility, upside from acquisitions and/or redevelopments, and further overseas diversification.
Highlighting its overseas portfolio, Chua maintains an optimistic outlook for its rental growth, pointing at leasing sentiment having improved from six months ago, and its US properties being under-rented by 10-30%. he also thinks that reversions will be "tracking to its low single-digit positive guidance for 2021."
OCBC Investment Research's team also recommended a "buy" on the REIT, albeit with a lowered fair value estimate of $3.83 form $3.84
The team says this was due to its recent capital recycling activities and enlarged unit base, causing its FY2021 and FY2022 DPU forecasts to be lowered by 2.1% and 0.1%, respectively.
UOB Kay Hian meanwhile, maintained its buy rating and a target price of $3.83.
At 10.46 am on Aug 4, units of Ascendas REIT are trading at $3.15, with a FY2021 price to book ratio of 1.36 and dividend yield of 5.1%, according to RHB.
