Ascendas Real Estate Investment Trust (SGX: A17U), or A-REIT, is Singapore’s first business space and industrial REIT. At last count, it owns 103 properties in Singapore and two properties in China. With yesterday’s release of its latest financials for the 12 months ended 31 March 2014, let’s take a look at how it fared. For the full year, gross revenue and net property income came in at S$614 million and S$436 million respectively and both had increased by 6.6% from a year ago. Meanwhile, the REIT’s amount available for distribution surged 11.9% to S$342 million while its distribution…
Ascendas Real Estate Investment Trust (SGX: A17U), or A-REIT, is Singapore’s first business space and industrial REIT. At last count, it owns 103 properties in Singapore and two properties in China.
With yesterday’s release of its latest financials for the 12 months ended 31 March 2014, let’s take a look at how it fared.
For the full year, gross revenue and net property income came in at S$614 million and S$436 million respectively and both had increased by 6.6% from a year ago. Meanwhile, the REIT’s amount available for distribution surged 11.9% to S$342 million while its distribution per unit (DPU) went up by 1.4% to 14.24 Singapore cents.
The increase in gross revenue was mainly due to a number of factors: 1) the recognition of rental income earned from The Galen, which was acquired at the end of the last financial year; 2) rental income from Nexus@one-north and A-REIT City@Jinqiao; 3) finance lease interest income received from a tenant; and 4) positive rental reversion (i.e. the change in rents to reflect market conditions).
A-REIT’s manager receives performance fees only if the growth in the REIT’s DPU exceeds 2.5%. Since DPU growth was only 1.4% for the latest financial year, no performance fee is payable though the manager will still receive management fees. The performance fee structure of A-REIT is slightly different from that of another industrial REIT, Cambridge Industrial Trust (SGX: J91U), whose performance fee is based on a two-tier system.
As of 31 March 2014, the gearing ratio of the REIT stood at 30%, an increase from 28.3% in the previous year. It is set to increase further to 31.2% once the REIT starts funding the investments it has already committed to. But despite the increase in gearing, A-REIT mentioned that it still can take on S$1.2 billion in debt before its gearing reaches the 40% level.
The weighted average tenure of debt outstanding and weighted average all-in borrowing costs were at 3.3 years and 2.7% respectively. The net asset value per unit came up to S$2.02, compared to S$1.94 in the past year.
The occupancy rate for the overall portfolio declined to 89.6% from 94.0% a year ago due to a 5.1% increase in net lettable area arising mainly from the acquisition of A-REIT City @Jinqiao, completion of the Nexus @one-north development and various asset enhancement works. The change in the REIT’s portfolio occupancy rate going forward will be something for investors to keep an eye on for clues on management’s ability to handle the new properties.
During the financial year, a total of six asset enhancements works with a value of around S$87.6 million were completed. Seven new asset enhancement initiatives, with an estimated value of around S$106.5 million, are now under way.
In Singapore, A-REIT said that its average rental rates of leases due for renewal are still below the market spot rental rates and thus, positive rental reversion can be expected when leases are renewed. With about 10% of vacancies in its portfolio, there could be potential upside in net property income when these spaces are taken up. However, operating costs could increase as well given the tight labour market, although measures are being taken to circumvent the impact. In China, the REIT will continue to look for opportunities in the target product segments and cities.
Over the past one year, A-REIT has not done much for its investors given its 11.4% decline in price. But, there’s still something to cheer about given that it has outperformed the FTSE ST Real Estate Investment Trust Index (SGX: FSTAS8670) by 3.2 percentage points; the REIT index has dropped by 14.6% amid all the tapering talk.
As of Monday’s close at S$2.33, A-REIT is trading at a price-to-book ratio of 1.2 and has a distribution yield of 6.1%.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.