Will Ascendas Real Estate Investment Trust Pass the 3 Questions Warren Buffett Would Ask Of An Investment?

Yesterday, I had taken a look at three important questions that billionaire investor Warren Buffett would ask when he’s looking at a business.

These questions are found in Robert G. Hagstrom’s book on Buffett, “The Warren Buffett Way,” and they are as follows:

  1. Is the business simple and understandable from your perspective as an investor?
  2. Does the business have a consistent operating history?
  3. Does the business have favourable long-term prospects?

Let’s take a look at Ascendas Real Estate Investment Trust (SGX: A17U) and see if it has what it takes to pass these questions.

As simple as can be

The business of Ascendas REIT is relatively simple: It develops, acquires, and manages industrial properties for the benefit of its unitholders. As of 31 December 2014, the REIT currently owns 104 properties in Singapore and two business park properties in China.

The main purpose of the trust is to generate a good rental yield on its properties which will then be passed through to its unitholders. There is not too much difference from investors buying a property on their own and then managing it to collect the best possible rent.

Not perfect but good enough

From FY2003 (financial year ended 31 March 2003) onward, Ascendas REIT has not made any losses for its unitholders. More importantly, the REIT has also been consistently paying out distributions to its unitholders in each year without fail since then.

That said, it is to be noted that the REIT’s growth in earnings have not been too consistent as there are years when it would experience sharp decline in earnings.

Thus, Ascendas REIT might not be ideal for investors who are looking for consistent growth.

What about its prospects?

Ascendas REIT is already one of the largest industrial property owners in Singapore and its tenant base is actually spread over 1,400 companies.

With these as a backdrop, it might seem like Ascendas REIT’s growth in Singapore may not be that promising going forward.

That being said, Ascendas REIT is already expanding its footprint internationally. If the international strategy is successful, it may well be another area of growth for the trust.

Foolish Summary

In summary, Ascendas REIT has a simple and easy to understand business; its track record has been quite impressive; and its future may be bright if it is able to grow significantly outside of Singapore.

Given what we’ve seen, Ascendas REIT has indeed passed Buffett’s questions. But, investors should be aware that there are other important areas of a company’s business that Buffett would also look into, such as its financial strength and its valuation, before any investment decision is made.

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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 Writer Stanley Lim doesn’t own shares in any companies mentioned.