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Would Warren Buffett Buy Ascendas REIT?

ascendas REIT a-reitWe have established that Warren Buffett is not totally averse to investing in bricks and mortar.

However, his advice about investing in property is to think carefully about what the asset is capable of producing rather than where you believe property prices are heading. Focussing on the former is investing, while a fixation on the latter is speculation.

So what would Warren Buffett make of income-producing Ascendas Real Estate Investment Trust (SGX: A17U)?

If size was all that matters then Ascendas REIT could almost be a no-brainer. The company, with a market value of S$5.6b, is Singapore’s largest quoted business space and industrial Real Estate Investment Trust. Its portfolio includes science parks, flatted factories and logistics centres.

Over the last ten years, Ascendas REIT has been a reliable source of income for investors. In 2004 it paid out S$0.08 per share. This increased to S$0.12 per share in 2006. Last year, the payout was S$0.14, which represented around 68% of earnings.

Ascendas REIT is quite profitable too. Its Net Income Margin of 58% is comparable to the 71% Net Income Margin at Mapletree Logistics Trust (SGX: M44U). However, it falls shy of the Net Income Margin of 101% at Mapletree Industrial Trust (SGX: ME8U).

In common with other REITs, Ascendas REIT is not especially efficient in the use of its assets. It only generated S$8.5 of revenues for every $100 of asset employed in the business last year. That said, it is more than twice as efficient as Keppel REIT (SGX: K71U), which generated S$3.70 for every $100 of asset employed.

Unsurprisingly, Ascendas REIT uses debt. Over the last ten years, Net Debt has increased from S$264m to almost S$2.3b, as the company grew its property assets from around S$2.7b almost S$7b. That said, its Leverage Ratio of 1.5 is more of less in line with the median Leverage Ratio of 1.6 for the industry.

Ascendas REIT fares well on most measures. Nevertheless, it is valued at around 10% above book, which doesn’t leave much of a safety margin.

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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 Director David Kuo doesn’t own shares in any companies mentioned.