What You Need To Know About Ascendas Real Estate Investment Trust’s Latest Result

#This article has been edited on 13th Aug 2018.

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Ascendas Real Estate Investment Trust (AReit)is the largest Industrial REIT listed on SGX, with total assets worth $10.4 billion as at 30 Jun 2018. It is a constituent of Straits Times Index, and also the largest REIT in Singapore, with 132 properties and a tenant base of 1,310 international and local companies from a wide range of industries.

AReit had been actively managing its portfolio by divesting assets above valuation and entering new markets to expand its revenue base. Just recently, it announced an acquisition deal for assets purchase in United Kingdom (UK).

With its first quarter FY18 earnings announced recently, let’s take a look at its performance to determine if it’s a good investment.

Overall

Source: Ascendas REIT 1Q FY18/19 Earnings Presentation

In quarter one FY18, AReit revenue grew 1.5% year-on-year (yoy) to $216 million. Net Property Income increased by a larger margin of 3.8% to $158 $159 million.

However, the amount available for distribution dropped 1% to $117 million. This is due to a one-off distribution that occurred in 1Q FY17. According to the earnings statement, this pertains to ‘one-off distribution of rollover adjustments from prior years amounting to S$5.9 million (DPU impact of 0.200 cents). This arose mainly from a ruling by IRAS on the non-tax deductibility of certain upfront fees for certain credit facilities incurred in FY11/12’.

Excluding the one-off payment, the distributable amount would have increased by 4.1% instead.

Portfolio Occupancy

Source: Ascendas REIT 1Q FY18/19 Earnings Presentation

The total portfolio occupancy dropped marginally yoy from 91.6% to 90.5%. Australia showed better occupancy with 98.6%, while Singapore assets had an 88.1% occupancy.

Rental Reversion

Source: Ascendas REIT 1Q FY18/19 Earnings Presentation

In 1Q FY18, Singapore assets saw its expiring rentals renewed at a higher rate of 10.5%. In particular, High-Specs Industrial and Data Centres saw high demand and renewed rental of 24.8%. All other segments saw higher renewal except for Logistics and Distributions Centres with a drop of 6.1%.

Australia had no rentals renewed during 1Q FY18.

Overall, the higher rental reversion showed that AReit’s Singapore assets were of good quality and are able to retain/attract new tenants.

Lease Expiry Profile

Source: Ascendas REIT 1Q FY18/19 Earnings Presentation

AReit has a well-staggered lease expiry profile. Its Weighted Average Least Expire as at 30 Jun was 4.1 years. About 9.3% of gross rental income is due for renewal in this financial year.

Capital Management

Source: Ascendas REIT 1Q FY18/19 Earnings Presentation

AReit’s Aggregate Leverage, calculated by dividing Total Liabilities over Total Assets, was 35.7%.

The Weighted Average Tenure of Debt was 3.4 years. Meaning on average, taking into account the size of loan quantum, AReit’s debt payment would last for 3.4 years. This has improved slightly yoy from 3.2 years.

Investment Actions

Source: Ascendas REIT 1Q FY18/19 Earnings Presentation

AReit has been actively managing its portfolio via asset divestment, acquisition and redevelopment. As seen from table above, in 1Q FY18, AReit divested 1 Singapore property, and acquired 2 properties in Melbourne. It had completed the redevelopment of 3 Singapore assets at a cost of $73.7 million.

Proposed Acquisition of UK Logistic Assets

On 26 Jul, AReit announced the proposed acquisition of 12 UK logistic assets. This marks their maiden entry into the European market, and a first major acquisition deal outside Singapore and Australia since it acquired 26 freehold Australian properties three years ago. The deal would cost $373 million which would be fully funded by debt.

The assets to be acquired span a gross internal area of 242,633 square meter and are all freehold. They boast a 100% occupancy rate, with brand name tenants such as DHL, Amazon and local government body.

According to management, the deal would diversify AReit’s portfolio to increase exposure to logistics sector up to 25% of total assets, increasing proportion of freehold assets to 19%, and improve WALE to 4.4 years.

The pro forma statement shows that annual Distribution per Unit (DPU), should the acquisition been completed on 1 Apr 2017 fully funded by debt, would expand by 1.2% to 16.182 cents.

Distribution

As shown earlier, the declared DPU for 1Q FY18 is 4.002 cents. However, do note that AReit makes a distribution on a half-yearly basis. Investors can expect to receive half a year’s worth of distribution after 2Q FY18 earnings announcement.

In FY17/18. AReit’s total distribution was 15.988 cents. Based on closing price of $2.76 on 30 Jul, its yield is 5.8%.

Conclusion

By and large, it seems like a business-as-usual quarter for AReit with not much surprises.

Management commented that there is an expectation of a gradual recovery of the industrial property market in Singapore on the back of healthy macroeconomic data and reduced supply of industrial properties. With a sizeable portion of high specs industrial and data centres, and business & science park, AReit should benefit from the long-term drive towards high value-added advanced manufacturing activities.

Australis outlook continues to be positive, with management commented that there would be increasing interest in Australian industrial properties due to economic growth.

As for the UK, management expects stable returns due to the long WALE. AReit would explore opportunities to further expand its presence in the UK. Sounds like we can expect more UK acquisitions in future.

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