It has been a challenging year for Singapore’s REITs in 2022 amid the rising interest rate environment. This is reflected in the sharp decline of share prices for the majority of Singapore REITs. However, the recent positive earnings released by some of the Singapore’s REITs reflects the resilience and asset quality of the REIT players.
CapitaLand Ascendas REIT has just reported solid earnings for 2QFY2022. Let us look into together.
Background
CapitaLand Ascendas REIT is Singapore’s first and largest listed business space and industrial Real Estate Investment Trust (REIT). It is listed on several indices such as FTSE Straits Time Index, the Morgan Stanley Capital International, Inc (MSCI) Index, the European Public Real Estate Association / National Association of Real Estate Investment Trusts (EPRA / NAREIT) Global Real Estate Index and Global Property Research (GPR) Asia 250. CapitaLand Ascendas REIT has an issuer rating of ‘A3’ by Moody’s Investors Services.
Business Model
CapitaLand Ascendas REIT owns properties across three key segments.
1) Business Space and Life Sciences
2) Logistics
3) Industrial and Data Centres
The properties are located in the developed markets of Singapore, Australia, the United States and the United Kingdom / Europe. CapitaLand Ascendas REIT is managed by CapitaLand Ascendas REIT Management Limited, a wholly owned subsidiary of CapitaLand investment (SGX: 9CI).
Before we look into the CapitaLand Ascendas REIT 3Q2022 results, let me share with you some of the basic knowledge about REITs.
What are REITs?
When you invest in a real estate investment trust (REIT), your money is pooled together with other investors in a collective investment scheme that invests in a portfolio of income generating real estate assets such as shopping malls, offices, hotels or services apartments.
These assets are professionally managed and revenues generated from assets (primarily rental income) are normally distributed at regular intervals to REIT holders, after accounting for fees, such as REIT management fees and property management fees.
The REIT’s investment goals are to generate income distribution and long-term appreciation potential. You can invest in them the same way as you would invest in stocks, through your broker.
How does the REITs work?
Let me show you how does a typical REIT structure works like. The money is raised from the unit holders through an initial public offering (IPO) and used by the REIT to purchase a pool of real esttae properties. These properties are then leased out to tenants. In returns, the income flows back to the unit holders (investors) as income distributions (which are similar to dividends).
Type of REITs
There are a number of REITs are listed on the SGX. Here are the broad categories of REITs you can invest in and he typical properties they own:
Commercial REITs – office buildings
Retail REITs – shopping malls
Industrial REITs – warehouses, logistics facilities and data centers
Hospitality REITs – hotels and serviced residences
Healthcare REITs – hospitals and nursing homes
Now let us look into the CapitaLand Ascendas REIT 3Q2022 results together.
CapitalLand Ascendas REIT 3Q2022 Results: Higher Occupancy Rate and Positive Rental Reversion
CapitaLand Ascendas REIT reported a 0.5%-point QoQ improvement in portfolio occupancy to 94.5% (+2.8 points YoY) on the back of occupancy improvements for its assets in Australia and the UK / Europe, driven by increased demand for logistic assets.
The group’s portfolio rental reversion remained positive (at +5.4% in 3Q and +8% year-to-date), although at a slower pace vs 2Q’s +13.2%. Management expects its portfolio’s overall FY2022 rental reversions to be in the positive mid-single digit range which is in line with its guidance earlier in the year.
Singapore portfolio occupancy was relatively stable q-o-q, at 91.8% in 3Q. Meanwhile, CapitaLand Ascendas REIT achieved positive rental reversion of 4.4% in Singapore, led by a strong rental reversion of +14.6% at its logistics properties. CapitaLand Ascendas REIT has a remaining 3.7% of portfolio leases will be expiring in 4Q2022. Majority of the remaining expiries are in Singapore, Europe, and the US.
Occupancy for Australia portfolio ticked up to 99.1% due to positive leasing momentum for logistics spaces, such as 92 Sandstone Place and 162 Australis Drive, which achieved 100% occupancy in 3Q. CapitaLand Ascendas REIT has 1.4% and 23.4% of leases due to be re-contracted in 4Q22F and FY23F, the bulk of which are logistics spaces in Sydney and Brisbane.
US portfolio occupancy slipped slightly to 94.8% in 3Q, due to lower occupancies within its business space portfolio. That said, it enjoyed strong rental reversions of +10.6%/+60% for its business and logistics spaces in 3Q. According to DBS Research, it has a minimal 7.3%/7.7% of leases to be renewed in 4Q22-FY23F, while UK / Europe occupancy grew 99.4%.
On the capital management front, CapitaLand Ascendas REIT saw its all-in financing costs inching up, but it has been largely mitigated by its high proportion of debt hedged to fixed rates of 78%. Gearing remains relatively healthy at 37.3% but could go up to 28% – 39% when the two recently announced acquisitions are completed by the end of the year.
CapitaLand Ascendas REIT’s aggregate leverage stood at 37.3% as at end-3Q. Interest cost rose slightly q-o-q to 2.2%, with 78% of debt hedged into fixed rates. We believe this is likely due to the additional debt taken by the group to fund the ongoing AEIs and redevelopment.
Future Prospect
CapitaLand Ascendas REIT estimates that a 50bp rise in interest rates could impact its DPU by S$0.0017. There is a S$660mil loans will be maturing in 4Q2022, and a further S$675mil loans. However, the group also implemented higher service charges for its Singapore leases from Oct 2022 to mitigate the rising utility charges and inflationary cost pressures.
In 3Q22, CapitaLand Ascendas REIT announced the acquisition of 622 Toa Payoh Loring 1 (Philip APAC Centre) and 1 Buroh Lane for a total consideration of S$296.7mil. Both acquisitions are expected to be completed at the end of 4Q2022, or the start of 1Q2023. Besides, there is a further S$622.4mil ongoing AEIs and development projects. The various projects will be completed as early as 4Q2022 to 2Q2025.
Technical Analysis
Resistance Level: SGD 2.91, SGD2.68
Support Level: SGD2.45
From the stock daily chart of CapitaLand Ascendas Reit (A17U), Ascendas failed to break the recent resistance price level of SGD2.68. Ascendas is currently still below the SMA 200 and also in a long-term down trend. The price might continue to seek support, and the next important support price level to eye is SGD2.45.
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The research, information and opinion expressed in this article / video are purely for information and educational purpose only and should not be construed as investment advice. We will not be liable for any losses or damages suffered from your investment decisions. Kindly consult a licensed investment advisor if you wish to get any investment advice.
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