Ascendas REIT (SGX: A17U) has recently announced its first half 2020 financial results. It is currently trading at 4.2% yield based on the last traded share price on 24 July.
Distribution per unit (DPU) and Dividend Yield (4.2%)
Price to book ratio (1.56)
Interest coverage ratio (4.2x)
Portfolio occupancy rate (91.5%)
Positive rental reversion (5.4%)
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 1H 2020 financial results, Ascendas REIT delivered a very healthy first half 2020 operational performance. Its distributable income was up 3.7% year-on-year. However, the DPU was down by 10.8%, this was mainly due to the enlarged unit base from the right issue exercise in December last year.
Based on its latest price, the REIT is currently trading at about 4.2% dividend yield. Historically, the REIT has been paying very consistent DPU, with steady growth over the years. However, its current 4.2% 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. The REIT has made some recovery on its share price in the past 2 months, its ratio of 1.56 does not look attractive as it is still well above its historical average.
Portfolio leverage remains conservative at 36.1%, which gives Ascendas REIT an extra $3.8b of debt headroom for future growth and acquisitions. The REIT also keeps a $361m cash and equivalent (increased from previous quarter of $260m) to meet current financial and operational obligations.
4. Interest coverage ratio
The REIT has an interest coverage ratio of 4.2 times (dropped from 5 times previously), which is just 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 91.5%. Its United Kingdom's portfolio maintains a high occupancy rate of 97.5%. Singapore occupancy rate slid to 87.9%, mainly due to a non-renewal of a light industrial property at 31 Joo Koon Circle. Its oversea portfolio continues to maintain high occupancy rate. The REIT continues to attract demand from various industries.
6. Positive rental reversion
The REIT achieved a 5.4% positive rental reversion this quarter. Its Australia portfolio outperformed with a 16.6% 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. 50% of its leases in terms of gross rental income are up for renewal in the next three years.
7. Growth Catalyst
Ascendas REIT has commenced three new AEIs and has two ongoing AEI projects, built-to-suit business park for Grab (completion: 2Q21), UBIX (4Q21) and iQuest@IBP (1Q23) under development. The REIT also acquired a new logistics property in Western Sydney, Australia for $21.1m, the development is expected to complete in first quarter 2021.
Looking forward, the management will continue to improve the portfolio resilience. The manager also guided that rental reversions could be slow for its properties in view of the current uncertainties.
The key financial metrics of the REIT still remain very healthy, we are still holding the REIT in our portfolio. However, we think that the price does not look attractive at current level.
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