Ascendas REIT Results: Positive Rental Reversion But Occupancy Falls
May 7, 2022
For long-term investors, those of us who love dividends have been watching the results (or business updates) from Singapore’s real estate investment trusts (REITs).
Many of the biggest REITs have already reported their earnings. One of the largest REITs listed in the city state – by market cap – is Ascendas REIT (SGX: A17U).
The industrial REIT, which has recently branched out into data centres, provided investors with their first-quarter 2022 business update earlier this week.
So, with REITs being seen as a great hedge on higher inflation, it’s worth understanding what are the trends that are playing out for one as large as Ascendas REIT.
Here’s what dividend investors need to know about the REIT’s latest business update.
Broadly positive trends
Ascendas REIT kicked off 2022 with a solid first quarter as posted positive rental reversion of 4.6%, up from the 2.9% positive rental reversion it recorded in the last quarter of 2021.
During the quarter, the REIT completed two acquisitions of logistics properties in Australia – one in Brisbane and one in Sydney – for a combined S$90.2 million.
Meanwhile, its weighted average lease expiry (WALE) for its portfolio is at 3.7 years.
For one of the few truly global Singapore REITs (it has properties in Singapore, the US, Australia, and the UK/Europe), the WALE of specific countries’ properties varied widely as of 31 March 2022 – from 3.2 years in Australia to 5.5 years in the UK/Europe.
One of the dampeners for the quarter was a lower overall portfolio occupancy rate, with Ascendas REIT’s portfolio occupancy, as of 31 March 2022, standing at 92.6%. That was down from 93.2% as of the end of 2021 (see below).
Source: Ascendas REIT 1Q 2022 Business Update presentation
This fall was mainly attributable to a lower occupancy rate in Australia, which came about from two non-renewals upon lease expiry.
Debt being responsibly managed
Investors in Ascendas REIT can take comfort from the fact that its gearing ratio was still at a relatively comfortable level of 36.8% as of 31 March 2022.
Meanwhile, around 80% of its total debt load is on fixed rates and it weighted average all-in debt cost is still low at 2.1%, which was actually down 10 basis points from the previous quarter.
In terms of its outlook, Ascendas REIT management acknowledged that supply chain disruptions, rising energy costs and higher interest rates are creating uncertainty.
Outlook uncertainty but factors to watch as well
However, it remains confident that the deeper structural trends – higher demand for logistics and data centre space – can help mitigate this as companies look to build resilience in their supply chains and accelerate the “digitisation” their industries.
One concern for investors could be the REIT’s lack of focus on any one particular property type as it recently expanded (in 2021) into data centres in Europe.
While these acquisitions helped build more resilience in its portfolio, investors should watch whether distribution per unit (DPU) grows at a similar pace as AUM.
At its current unit price of S$2.80, Ascendas REIT shares are offering investors a 12-month forward dividend yield of 5.4%.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.