Broker’s Call: Ascendas REIT Hikes DPU 3.6% for H1 2022, Maintain Add

Singapore industrial REIT

Mun Yee Lock

August 10, 2022

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CGS-CIMB Analyst take

Amid the thick of earnings releases, many of Singapore’s biggest REITs have been releasing key numbers.

One popular REIT sub-sector is industrial REITs. Among the biggest in this space in Singapore is Ascendas Real Estate Investment Trust (SGX: A17U), better known as Ascendas REIT.

It reported its latest numbers for the first half of 2022 last Tuesday (2 August).

While industrial REITs were the go-to “pandemic play” on the REITs sector – given their reliable cash flows – interest in them has since cooled.

The research team at CGS-CIMB Securities maintains our “ADD” call and the S$3.20 target price for Ascendas REIT remains unchanged.

Let’s dig deeper into what investors should know about Ascendas REIT’s latest H1 2022 results.

Ascendas dividend for H1 2022 rises 3.6%

Ascendas REIT posted a solid first-half 2022 performance. Revenue for the period was up 13.7% year-on-year to S$666.5 million. Contributions from European data centres and US logistics properties were the key drivers.

Yet net property income (NPI) rose at a slower clip, only increasing 7% year-on-year to S$476.9 million. That drag came from higher utilities expenses from its Singapore properties.

So, what about the all-important distribution per unit (DPU)? Well, for H1 2022 that increased 3.6% to 7.873 Singapore cents, versus the 7.598 Singapore cents DPU for H2 2021.

Management did say that it’s unlikely to reach its S$1 billion acquisition target for FY 2022 given the deal cycle is taking longer in this environment (rising rates).

Around 80% of its borrowings are in fixed rates, though. That should provide some comfort to shareholders.

Meanwhile, Ascendas management said that a 25 basis point (bp) change in average funding cost would impact DPU only marginally – by 0.07 Singapore cents.

Strong occupancy and rental reversions

Ascendas REIT’s Singapore portfolio is proving to be resilient. Its portfolio in the Lion City achieved an impressive positive rental reversion of +13% in Q2 2022.

That performance was led by uplifts from business and science parks, industrial and data centres, and logistics properties.

Its overseas properties did even better. Rental reversions from Ascendas REIT’s Australia, US, and Europe properties came in at +15.2%, +15.3%, and +11.7% respectively.

The REIT’s US portfolio saw 15.3% rental version for its business space properties in the second quarter of 2022.

On the portfolio occupancy front, the occupancy rate improved to 94.0% as at 30 June 2022. That was up from 91.3% at the same point in 2021.

How’s Ascendas REIT doing on ESG?

Ascendas REIT ESG score

Source: CGS-CIMB Research

On the Environmental, Social and Governance (ESG) front, Ascendas REIT scores a “B-” for its 2021 performance. It has maintained a high A+ rating for ESG controversies.

The REIT scored some key ESG wins on the fundraising side in 2020, including raising S$100 million of green bonds and S$300 million of green perpetual securities.

Finally, Ascendas REIT has continued to improve its Environmental and Social pillars over the past five years with higher scores led by resource use (B), emissions (B-) and human rights (A-).

Reiterate our Add rating

As for Ascendas REIT projections, we keep our DPU estimates unchanged for its FY22-24 and maintain our target price of S$3.20 (shares currently trade for around S$2.93 apiece).

The REIT is trading at an attractive 5.6% FY22 yield and we continue to like Ascendas for its diversified and resilient portfolio as well as healthy balance sheet.

Potential upside catalysts could come from a faster-than-expected global recovery and accretive new acquisitions.

However, downside risks include a protracted economic downturn.

Disclaimer: CGS-CIMB Securities REITs Analyst Mun Yee Lock doesn’t own shares of any companies mentioned.

About the Author: Mun Yee Lock