Ascendas REIT (SGX: A17U) is Singapore’s first and largest listed business space and industrialreal estate investment trustwith a market cap of S$12.1 Billion.
Amid the pandemic last year, Ascendas REIT has performed well due to its resilient position in logistics and data centres. Nonetheless, with the pandemic ending, Ascendas REIT’s share price has fallen from its peak in July 2020 and remained flat for the entire year.
In this article, we will analyse if Ascendas REIT is still an attractive investment moving forward.
Ascendas REIT’s Portfolio Overview
As of 31 December 2021, Ascendas REIT has a portfolio of properties in Singapore, Australia, Europe (mainly in the United Kingdom), and the United States. Among these properties, it comprises Business and Science parks, Integrated development, High specs industrial & data centres, Light Industrial & Flatted Factories, and Logistics
Apart from being geographically diversified, Ascendas’s tenants are also well-diversified across industries, with the largest sector (Data centres) taking up only 11.7% of its portfolio.
Given such diversification, no single property of Ascendas accounts for more than 4.3% of its monthly gross revenue. This is great as it reduces any tenant concentration risk.
Ascendas REIT’s Financial PerformanceRevenue
When we look at the financial performance of Ascendas REIT over the last five years, we can see that it is on an uptrend, with increased gross revenue, net property income, and distribution income year after year.
Note: As a result of the change in its financial year, FY2019 result is a nine-month period from 1 April 2019 to 31 December 2019 which explains why it is lower.
Occupancy and Lease Expiry
Ascendas’ portfolio occupancy has also improved, up to 93.2%.
Within the portfolio, there was also an average rent reversion of 4.5% for leases renewed in FY2021, which is a healthy sign as it would translate to higher rental income.
Although rent reversion is projected to be positive in the future, Ascendas anticipates it to be in the low single digits in FY2022 due to market uncertainty.
Note: They said the same thing last year, but we actually witnessed an improvement from last year’s 3.8%. Maybe the management wants to play it safe and keep expectations low.
Next up, the lease expiry for Ascendas is well spread out over the years. With a healthy portfolio Weighted Average Lease Expiry (WALE) of 3.8 years, we can expect a stable occupancy rate going forward.
Financial Strength
Growing revenue is just one factor.
REITs with a strong balance sheet are the ones that can do well, even during bad times. As of 31 December 2021, Ascendas REITs gearing ratio is at 35.9%, a slight increase from the previous year but still well below the regulatory limit of 50%.
Apart from that, they have a healthy interest coverage ratio of 5.7x, which provides the REIT with some headroom if required.
As seen from the figure above, its debt maturity is also well spread out. As such, I do not foresee any cash flow problem for Ascendas. Of all its properties, it is noteworthy that 92.1% are unencumbered properties which mean most of Ascendas’ properties are not listed as collateral for any loan.
Strong sponsor
Good REITs are usually those with good backing. For Ascendas REITs, its sponsor isCapitalandwhich has 18% stake in it. By having a strong sponsor like Capitaland, Ascendas can potentially enjoy lower interest rate on loans from financial institutions due to its reputation. Apart from that, it also ensures a pipeline of assets that Ascendas could acquire from Capitaland. At the moment, it has a pipeline of business and science park properties worth more than S$1.5 billion.
*Typically, there is usually a right of first refusal agreement between the REIT and its sponsor. As such, when the sponsor wants to sell its property, the REIT will be offered the right to purchase it before it is offered in the open market.
Ascendas REIT share price growth since IPO
Ascendas REIT IPO-ed in 2005 at a IPO price of $0.88 per unit, raising about$636 million. Since then, its share price has risen over the years despite a rather consistent dividend payout schedule.
If you had bought it at IPO and held it till 31st Dec 2021, you would be seating on 235% growth. That doesn’t even include the dividends you would have received over the years.
Should you buy Ascendas REIT now?
Ascendas REIT is well-positioned to benefit from global e-commerce and digital trends. Along with it, you get a management that has time and time again, demonstrated its alignment with retail stakeholders, providing great comfort.
In addition, investors should expect continued DPU growth in FY2022, thanks to a record $2.1 billion in acquisitions and AEIs in FY2021. All in all, this REIT remains an attractive proposition for investors, particularly those building adividend portfolio.
Source: DR Wealth
Comments