Top 7 Things To Know About Ascendas Real Estate Investment Trust

This article has been edited following a reply from the Ascendas REIT’s investor relations team.


Ascendas Real Estate Investment Trust (SGX:A17U) (A17U 2.62 -0.04 -1.50%) is one of the largest real estate investment trusts in Singapore. Listed in Singapore, the REIT focuses in business space and industrial real estates. Its assets are located in Singapore and Australia and house a wide range of customers. Ascendas REIT is part 30 constituents that made up the Straits Times Index since June 2014.

Here are 7 things you need to know about Ascendas REIT.

    1. Stock Information

1

TICKER SYMBOL: SGX:A17U

MARKET CAP: SGD 7.5 Billion (Updated 8th May 2017)

SECTOR: REIT

INDUSTRY: Real Estate

  1. The Business

Ascendas REIT categories its properties into 5 key segments, namely:

  • Business and Science Park
  • Integrated Development Amenities and Retail (IDAR)
  • Hi-Specs Industrial
  • Light Industrial
  • Logistics

It has roughly 103 properties in Singapore and 29 properties in Australia. The total asset size of its portfolio is around S$10.2 billion. As at April 2017, 81% of its asset by gross floor area is still in Singapore, which contributed about 86% of the total property value.

Source: ValueInvestAsia’s Calculation | Data as at April 2017

Source: ValueInvestAsia’s Calculation | Data as at April 2017

Ascendas REIT is sponsored by Ascendas-Singbridge Group, following Ascendas’ merger with Singbridge recently. The company is linked to the Singapore Sovereign Wealth Fund, Temasek Holdings.

  1. Key Opportunities

Strong Growth Track Record

Source: Ascendas REIT Presentation April 2017

Ascendas REIT has a long track record of creating value for its unitholders. The trust has been increasing its distribution per unit for its investors at about 5.2% per annum for the past 14 years. Its manager has shown to be able to be good asset allocators when acquiring new properties for the REIT.

Diversified Portfolio and Tenant Mix

Ascendas REIT has a well-diversified portfolio of properties. Its properties are well distributed among different type of commercial and industrial properties. With more than 1390 tenants, its rental income is also well-diversified. Its top 10 customers only contribute about 20.8% of its gross rental income. Ascendas REIT’s top customer, Singapore Telecommunication only provides 4.8% of its overall rental income.

Source: Ascendas REIT Presentation April 2017

Strong Balance Sheet

In addition, Ascendas REIT has maintained a relatively strong balance sheet in recent years. Its aggregate leverage is now at about 33.8%.

The trust has made a massive acquisition of its Australia assets in 2015 for A$1.01 billion. Interestingly, it is still able to keep its leverage well below the 45% requirement for REITs listed in Singapore.

  1. Key Risks

Changing Trends of Office & Industrial Space in Singapore

However, there are some risks looking ahead. Firstly, the usage of office spaces is changing. The current generation of millennials works very differently from previous generations. This means that the workplace design is evolving as well. This means that there might be a need for more type of properties in the future to suit many different types of industries and purposes.

Moreover, trends like “hot desking” and co-sharing offices are growing fast. Given that most work can now be done remotely, the demand for offices might even face a decline in the future. This might impact the business park segment of the REIT.

Response from Ascendas REIT’s IR team: Manufacturers of lower value products are slowly moving out of Singapore and they are being replaced with higher value-add/knowledge based industrialists. Thus, one of the reasons why the REIT has been increasing its exposure to Business and Science Park properties is due to this structural changes happening in the industrial properties segment in Singapore. In Singapore, Business and Science Park properties are classified as industrial properties under JTC, and not as offices. This suits well with Ascendas REIT’s focus as an industrial REIT.

Too Big To Grow

Another issue with Ascendas REIT is that it is already a S$7.5 billion REIT. It is not only one of the largest REIT in Singapore, it is one of the largest REIT in the Asia-Pacific region. The growth opportunity left for the REIT might be restricted. That might be the reason why it has to start moving outside of Singapore by acquiring assets in Australia.

Its huge size might start to create more challenges for the REIT in the future. This is because as the REIT grew in size, it would need to make ever larger acquisitions or capital expenditure to create meaningful growth for its unitholders. For example, a S$500 million REIT would just need to grow its value by S$50 million to create a 10% growth for unitholders. However, a S$5.0 billion REIT would need to increase its value by S$500 million to create the same magnitude of growth for its unitholders.

Response from Ascendas REIT’s IR team: Australia offers many other advantages as a growth market for Ascendas REIT. One of the more important aspects is that Ascendas REIT is able to invest in freehold lands in Australia while all industrial lands in Singapore are classified as leasehold.

“We feel that Ascendas Reit’s size has its advantages. For example, we are able to secure better funding to make yield accretive acquisitions, and we are able to undertake asset enhancements or redevelopments without materially affecting the Reit’s performance due to any downtime.”

  1. Valuation

Ascendas Real Estate Investment Trust is trading around 1.16 times its book value and provides a 6.5% distribution yield for its investors. The REIT has traded between the range of roughly 0.7 to 1.4 times its book value for the past decade.

  1. Investor Relations

Investor Relation Material:

For Investor Enquiries
Wylyn Liu (Ms)
Investor Relations & Communications
DID :+ 65 6508 8840 / + 65 6774 1033
Fax :+ 65 6775 2813
Email: wylyn.liu@ascendas-singbridge.com

  1. Top Shareholders (May  2017)

  1. Temasek Holdings – 20.4%
  2. Mondrain Investment Partners – 8.02%
  3. BlackRock Inc – 6.00%
  1. Financials

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and do not in any way represent those of his employer and other related entities. Stanley Lim does not own any companies mentioned.

Stanley Lim, CFA

Stanley Lim has spent the last decade in the investment industry. Over the course of his career, he has kick-started a few businesses, worked in the family office industry and most recently in the investment advisory industry. He has been a writer and analyst for The Motley Fool Singapore from 2013 to 2017. He has written close to 2000 articles online, on investment education and market analysis. He is the co-writer for the upcoming investment book: “Value Investing In Asia”, scheduled to be published late 2017. Stanley is currently the chief editor of Value Invest Asia.

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