Ascendas REIT (SGX: A17U) has recently announced a business update based on its first-quarter 2020 financial results. It is currently trading at 5.7% yield based on the last traded share price of $2.93 on 8 May.
Distribution per unit (DPU) and Dividend Yield (5.7%)
Price to book ratio (1.33)
Interest coverage ratio (5x)
Portfolio occupancy rate (91.7%)
Positive rental reversion (8%)
Covid-19: Managing the unexpected event
Background of Ascendas REIT
Ascendas REIT was the second REIT listed on Singapore Stock Exchange in 2002. It is the biggest REIT with a focus on managing industrial properties. The REIT owns and manages a portfolio of industrial properties in Singapore, Australia, the United Kingdom and the United States.
Ascendas REIT is managed by Ascendas Funds Management Limited, which is owned by Capitaland Limited (SGX: C31). The REIT is listed on several indices, which include the FTSE Straits Times 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.
1. Distribution per unit and dividend yield
In its latest business update, Ascendas REIT delivered a healthy first quarter 2020 operational performance. Based on its latest price, the REIT is currently trading at about 5.7% dividend yield. Historically, the REIT has been paying very consistent DPU, with steady growth over the years. However, its current 5.7% yield is at the low side as compared to its average yield of 6.5% over the past 10 years.
2. Price to book ratio
Over the past 10 years, Ascendas REIT has been trading at an average price to book ratio of 1.14. Despite the recent correction, its ratio of 1.33 does not look attractive as it is still well above its historical average.
Portfolio leverage remains conservative at 36.2%, which gives Ascendas REIT an extra $3.8b of debt headroom for future growth and acquisitions. The REIT also keeps a $290m cash and equivalent to meet current financial and operational obligations.
4. Interest coverage ratio
The REIT has an interest coverage ratio of 5 times, which is slightly above our preference of 4 times. Besides, the REIT maintains an overall interest cost of 2.9%. Ascendas REIT continues to maintain a healthy balance sheet which enables its access to wider funding options at better rates.
5. Portfolio occupancy rate
Portfolio occupancy remains high at 91.7%. Its United Kingdom's portfolio maintains a high occupancy rate of 97.5%. Singapore occupancy rate improved slightly, mainly due to the better performance at 40 Penjuru Lane and LogisHub@Clementi.
6. Positive rental reversion
In the business update, the REIT achieved a 8% positive rental reversion this quarter. Its Australia portfolio outperformed with a 13.7% rental reversion! However, the management guided that the rental reversion for full year 2020 is expected to be flat due to the Covid-19 uncertainties.
7. Growth Catalyst
Ascendas REIT has acquired a 25% stake in Galaxis for a purchase consideration of S$102.9m. It also completed asset enhancement initiatives in the first quarter worth S14.5m. To rebalance its portfolio, three properties in Singapore were divested with a total value of S125m.
Meanwhile, Ascendas REIT is currently undertaking built-to-suit business park for Grab (completion delayed to 1Q21), two redevelopments at 25/27 Ubi Road 4 and Quest@IBP and four AEIs (Asperia, The Galen, 52/53 Serangoon North Ave 4 in Singapore, Great Western Highway in Sydney).
8. Covid-19: Managing the unexpected event
The management guided that none of its properties were shut during the Covid-19 lockdowns and no tenant has requested to pre-terminate in the near term. Rent collection remain healthy, however 20% of the local tenants have enquired about rent waivers or relief packages. The good news is these group of tenants form less than 1% of its gross rental income.
The REIT remains resilient with more than 50% of its monthly gross revenue contributed by relatively more resilient industries such as financial services, government sectors, data centres and biomedical.
In the near term, we would expect some volatilities and the DPU is likely to be affected for the next two quarters. However, the key financial metrics of the REIT still remain very healthy.
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