Investors are in the thick of earnings season right now as companies release their latest quarterly or second-half 2021 financial results.
Here in Singapore, the earnings of the biggest real estate investment trusts (REITs) are closely watched given the importance of dividend investing and the streams of reliable income they produce.
A host of Singapore REITs have already announced their earnings in late January/early February. At the beginning of this week, one of the largest industrial REITs here – Ascendas REIT (SGX: A17U) – released its own H2 2021 and full-year 2021 earnings.
With inflation globally running hot and interest rates rising in the US, what’s the outlook for shareholders of Ascendas REIT? Here’s what investors need to know.
Lower half-on-half DPU
Ascendas REIT is one of the largest REITs in Singapore with a market cap of around S$12 billion.
It owns 220 properties, including business parks, logistics properties as well as (more recently) data centres, across Singapore, Australia, Europe and the US.
While a lot of the headlines surrounding Ascendas REIT’s H2 2021 distribution per unit (DPU) focused on a higher DPU year-on-year – which rose 2.4% from the second half of 2020 – it should also be noted that this was down from H1 2021.
In the first half of 2021, Ascendas REIT paid out a DPU of 7.66 Singapore cents. However, this was down 0.8% half-on-half to 7.59 Singapore cents in the second half of last year.
That was mainly due to an increase in the number of units as well as acquisition and divestment fees (paid in units to management) related to certain property transactions.
Meanwhile, Ascendas REIT’s revenue expanded by 21.3% year-on-year in H2 2021 to S$640.5 million as completed acquisitions started to contribute.
Increasing occupancy rate and healthy leverage
On the portfolio front, Ascendas saw its occupancy rate improve 1.5% year-on-year to 93.2% with its properties in Singapore, Australia and the US contributing to the increase (see below).
Source: Ascendas REIT FY 2021 earnings presentation
As of 31 December 2021, its gearing ratio stood at a healthy 35.9%, so well below the 50% MAS ceiling, and it had a robust interest cover ratio (ICR) of 5.7x.
Ascendas REIT’s weighted average all-in debt cost was a relatively low 2.2% and nearly 80% of its loans are on fixed terms, lessening the risk from rising interest rates.
Many of the REIT’s properties – over 80% of its assets under management (AUM) – are exposed to trends in new economy sectors such as technology, life sciences, data centres, and logistics.
Focus on long-term returns and not size
While results from Ascendas REIT were, on the face of it, respectable it’s also worth remembering that (along with the share price) the critical DPU number has to keep growing.
That’s what any REIT investor should want to see – a combination of both capital appreciation via a rising unit price and consistently-rising DPU.
Unfortunately Ascendas has been lagging in both areas over the past five to 10 years. Over the past five years (as of the end of 2021), Ascendas units have delivered a total return of just 71%.
That compares poorly versus its peers such as Mapletree Logistics Trust (SGX: M44U), with a 146% total return, and Frasers Logistics and Commercial Trust (SGX: BUOU), with a 126% total return, over the same time frame.
Meanwhile, over the past decade Ascendas REIT has grown its DPU at a compound annual growth rate (CAGR) of a miserly 1.2%.
While the REIT may be one of the biggest in Singapore, it’s also an apt illustration that size does not always translate into superior returns in real estate.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips owns shares of Mapletree Logistics Trust.
