Ascendas Reit

Ascendas REIT Review: Should You Still Invest Despite the Share Price Drop?

Ascendas Real Estate Investment Trust is one of Singapore’s best and largest business spaces and real estate investment trusts focused on industrial investments. Having a valuation of S $12.1 billion, many investors in Singapore consider Ascendas REIT one of the best blue-chip shares to invest in. However, its recent share performance hasn’t been up to par, discouraging some investors from pursuing the company’s shares.

With this in mind, we still believe that Ascendas can put on an excellent performance in the next few years. It still has a nominal debt headroom, and its portfolio occupancy has increased, allowing it to invest in much more properties worldwide. If you’d like to know whether or not to invest in Ascendas, check out our comprehensive review below.

Profile

Ascendas Real Estate Investment Trust or Ascendas (SGX: A17U) is Singapore’s leading business space and industrial investment trust that had its inception in November 2002.

 

Portfolio and Assets

Its real-estate portfolio has over 200 properties in Singapore, the United Kingdom, the United States, and Australia, including suburban office properties, industrial properties with high specifications, light industrial properties, logistics and distribution centers, and business and science parks.

Ascendas REIT’s properties house a tenant base of up to 1,450 international and local companies involved in research and development, information technology, logistics services, electronics, and others.

Performance

Below is Ascendas REIT’s performance during the first and second quarter of 2020 against the first and second quarter of 2021.

First-Second Quarter FY2020 First-Second Quarter FY2021 Percent Difference
Gross Revenue

(in Millions)

S $521.2m S $586.0m +12.4%
Property Operating

Expenses (in Millions)

S $133.2m S $140.4m +5.4%
Net Property

Income (in Millions)

S $388.0m S $445.6m +14.8%
Distributable

Income to

Unitholders (in Millions)

S $263.2m S $311.0m +18.2%

 

Upon first glance, it’s easy to see the huge 12.4% increase in gross revenue as a significant positive factor in Ascendas REIT’s valuation supported by the 14.8% net property income increase, which highlights stability. However, Ascendas REIT’s operating expenses have increased by 5.4% to S $140 million in the first half of FY 2021.

Recent news about the company highlights its acquisitions, such as the 11 data centers in Europe, two office properties in San Francisco, and two offices in suburban Brisbane acquired during the last fiscal year. However, new acquisitions mean lower distributable income, but Ascendas REIT showed an 18.2% improvement despite the odds and challenges of managing new assets.

Occupancy Rate

Q1 FY2021 Q2 FY2021
Portfolio Occupancy

(in Percentage)

90.6% 91.3%
Rental Reversion

(in Percentage)

+3.0% +8.9%

 

A portfolio’s occupancy is the percentage of its securities in an investment or an equivalent asset with high credit quality. Ascendas REIT’s impressive performance includes increasing its portfolio occupancy rate that has gone up from 86.9% to 87.9% by the second quarter of 2021 for Singapore properties alone. Notable 0.5-1.0% increases in their Australian and US property portfolio occupancies strengthen the company’s shares.

The great renewal rate in multi-tenant buildings in the US is the anchor of the huge 8.9% rental reversion in the second quarter of 2021. US renewal rates have increased from 6.2% in 2020 to 26.3% in 2021 during the first and second quarters of the year. We believe that the rental reversion rates will be in the positive range at a low rate.

Distribution Per Unit

First-Second Quarter FY2020 First-Second Quarter FY2021 Percent Difference
S $7.27 S $7.66 +5.4%

 

Ascendas REIT’s DPU might seem small, but the major 5.4% increase makes a remarkable difference for investors that have continuously stuck with the renowned blue-chip stock. On 01 January and 13 May 2021, Ascendas REIT has paid out S $5.63 per unit to unitholders on 09 June 2021. Ascendas will pay the remainder of the S $7.66 per unit dividend later in September 2021.

Debt Condition

It’s undeniable that any investment trust, even Ascendas REIT, isn’t immune from an increase in the cost of debt. Ascendas REIT does have its share of debts, but its balance remains acceptable and encourages growth. The company still has a headroom of S $4.2billion. The fund’s longest maturity loan is in 2030 and has regularly paid its dues in 3.7 years, and still going strong. Plus, 91.7% of Ascendas REIT properties aren’t listed as collateral for any of its loans.

Financial Strength

Based on its debt balance and overall growth, we assume that Ascendas REIT will have an impressive profits-to-debt ratio in the future because of its continued strong financial strength. Ascendas REIT guarantees security thanks to its impressive and well-managed property portfolio if things keep going according to plan.

Ascendas REIT’s current financial capabilities allow it to acquire more assets to elevate its position and improve its performance in the coming years. We believe it can achieve much more than its already impressive 2021 profile.

Recent Acquisitions

On 3 June 2021, Ascendas REIT wrote to investors that it has recently acquired three logistics properties in the jurisdiction of Australia. Earlier this year, on 4 May 2021, Ascendas REIT has acquired the remaining 75% interest in Galaxis worth S $534.4 million and invested in numerous European data centers last 17 March 2021.

Risks Involved

Ascendas REIT’s debt-to-equity ratio is at a considerably high rate at 63.2%, but this is a relative improvement against the 63.4% it strived to reduce in the last few years. While the blue-chip company has an impressive real-estate portfolio, its operating cash flow cannot compensate for the entirety of its debt. However, it doesn’t mean that the company can lose cash at any time, and it has EBIT to cover its debt interest payments during the direst situations.

Our Verdict

Based on our analysis of all available data, recent acquisitions, cash flow, and consistent investments, we can say that Ascendas REIT is still an excellent investment despite its recent share price drop. When it comes to its performance, Ascendas REIT can recover easily because it’s one of Singapore’s largest listed business spaces with enough assets to liquidate to address its debt should things go awry.

If we look at our investment fundamentals, a good business will always outlast a sudden price dip. We believe Ascendas REIT has everything it takes to maintain its current business performance and win over investors’ confidence.

What our Analyst says about Ascendas REIT:

  1. Is Ascendas REIT a Good Buy?

In our perspective, Ascendas REIT is a good buy because of its possible long-term performance based on its current cash flow, tangible assets, and wide debt headroom. While it’s currently enduring a 63.2% debt-to-equity ratio, we’re confident that maintaining 91.7% of its properties outside equity allows Ascendas REIT to recover from a possible handful of wrong maneuvers it might commit in the future.

Thus, we advise investors to manage their portfolios and give way for Ascendas REIT, especially right now that its share price has temporarily dropped from its recent height.

  1. What Might Be The Reason Ascendas REIT Took a Small Price Drop?

The ongoing pandemic has scared many investors in the REIT sector until Ascendas funds management and other REITs have made decisive moves that helped increase their respective businesses’ productivity and value.

As we’ve mentioned above, the high debt-to-equity risk ratio of Ascendas at 63.2% can be frightening to investors. However, we’re willing to say it can minimize its debt in the coming years. Thanks to its excellent debt headroom, continuous and stable acquisitions, and confident management.

  1. Who Owns Ascendas REIT?

Ascendas Fund Management manages Ascendas REIT. Ascendas Fund Management is a subsidiary of CapitaLand Limited. HSBC Institutional Trust Services Singapore is an Ascendas REIT trustee that acts on behalf of Singaporean unitholders.

Ascendas has its own registered asset and property managers per country and is subject to local regulation, and has jurisdictions on properties they leverage in each one. We’ve listed them below:

  • Singapore: Ascendas Services Pte Ltd
  • Australia: Ascendas Funds Management Australia Pty Ltd
  • U.K.: C.L. International Management U.K.
  • U.S.: CapitaLand International (USA) LLC

You can learn more about Ascendas REIT’s ownership and investor framework on their website.

  1. What REIT Type is Ascendas?

Ascendas REIT is a standard real estate investment trust that is one of Singapore’s largest.

To give you a brief refresher about REITs:

Real estate investment trusts hold real estate-related assets such as office buildings, apartment buildings, shopping centers, hotels, and industrial parks. The trust invests in real estate to generate a stable cash flow from rents from tenants and interest and dividend income from investments.

In the case of Ascendas REIT, it invests in suburban office properties, industrial properties with high specifications, light industrial properties, logistics and distribution centers, and business and science parks.

  1. Are REITs Sustainable Investments?

REITs are generally viewed as a good investment for the long-term because they are less volatile than stocks, bonds, or even some other types of investments. We can say that REITs are a good investment because they help to diversify your portfolio. However, REITs aren’t good short-term investments because they only accumulate value in years or half a decade. Most REITs give you great returns within 10-20 years.

  1. Who Manages REITs?

Portfolio managers are responsible for managing the assets of a company. They typically oversee the real estate investments of their company, which includes properties, land, and securities. Portfolio managers are responsible for developing the company’s strategy and making strategy-based decisions concerning acquisitions, divestitures, mergers, and others.

To Sum It All Up

  • Ascendas REIT is Singapore’s largest real estate investment trust that owns properties in various developed nations.
  • It recently acquired logistical properties in Australia and has a decent cash flow to make new investments and handle minor issues.
  • Ascendas REIT currently has a 63.2% debt-to-equity ratio, which might spook some investors.
  • We believe that Ascendas REIT can maintain and improve its performance shortly due to its solid foundation, excellent leadership, and existing assets.

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