Latest Earnings From Ascendas Real Estate Investment Trust

Credit: Yoshi Canopus

Ascendas Real Estate Investment Trust  (SGX: A17U) had released its fiscal third-quarter earnings for the three months ended 31 December 2015 last Friday evening.

The REIT invests mainly in business spaces and industries properties. As of 31 December 2015, it has 102 properties in Singapore, 26 logistics properties in Australia, and two business parks in China.

The properties house a diverse tenant base of around 1,470 international and local companies that are in a wide array of businesses such as research and development, life sciences, information technology, engineering, and more.

You can find out more about the REIT in here or delve into the details of its recent purchases in here.

With that, let’s jump into the trust’s latest results.

Financial highlights

For the reporting quarter, Ascendas REIT’s total gross revenue grew by 12.9% year-on-year to S$193.8 million while its net property income had climbed by 24.1% to S$142.2 million. The encouraging growth was as result of four main factors:

  • New contributions from the acquisition of the REIT’s Australian portfolio during the quarter;
  • Higher occupancy at some properties;
  • Contributions from completed asset enhancement initiatives; and
  • Positive rental reversions on renewal of some leases.

Similarly, Ascendas REIT’s income available for distribution had advanced by 11.7% year-on-year to S$96.6 million with the distribution per unit (DPU) increasing by 9.9% to 3.946 Singapore cents. It’s worth noting that the DPU growth was slightly lower compared to the increase in income available for distribution. This is because the trust had included new units that were created as a result of the preferential offering that was announced on 9 December 2015.

Ascendas REIT ended the reporting quarter with an adjusted net asset value of S$2.02 per unit, up slightly from the S$2.00 seen a year ago.

Operational highlights

On the operations front, the trust’s overall occupancy rate stood at 89.2% as of 31 December 2015, a 2.4 percentage points increase compared to the end of 2014.

Ascendas REIT had ended the reporting quarter with a weighted average lease term to expiry (WALE) of 3.7 years, down from the 3.9 years seen at end-2014. Investors should take note that 46.6% of the REIT’s leases by gross revenue is due for renewal from now to the fiscal year ending 31 March 2018; the progress of lease renewals may be worth watching.

As it is with most trusts, Ascendas REIT’s gearing ratio and interest-related numbers are important measures of its financial stability.

The REIT’s aggregate leverage has increased to 37.3% in the reporting quarter as compared to 33.6% a year ago; the weighted average debt maturity has declined from 3.9 years to 3.5; the average cost of debt has stepped up slightly from 2.7% to 2.72%; and the interest cover ratio has slipped from 6.1 times to 5.9.

Investors should also take note that around half of the REIT’s total debt of S$3.49 billion will be expiring from 2016 to 2018. If the REIT finds itself in an environment of rising interest rates in the near future, it may get tougher for it to refinance its loans at competitive rates.

Prospects & valuations

At the moment, the REIT has 10.8% of vacant space in its portfolio and it thinks “there could be potential upside when some of the space is leased.”

Moreover, Ascendas REIT also commented in its earnings release that “the average passing rental rates of most of the leases… due for renewal in FY15/16 are still below market spot rental rates; hence, moderate positive rental reversion can be expected when such leases are renewed.”

Additionally, it warned that the industrial property market is “expected to remain challenging” as a result of “significant new supply and tepid economic growth both in Singapore and globally.”

Investors may also want to note that Ascendas REIT will continue to seek growth in Australia. According to the REIT, “demand for logistic space is expected to be strong, backed by a healthy jobs market, low interest rates, lower Australian dollar and firm consumer spending.”

Ascendas REIT last changed hands at S$2.17 on Friday. At that price, the trust’s units are valued at 1.07 times its book value and carry a distribution yield of 7.2% thanks to its trailing distribution of 15.657 cents per unit.

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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 James Yeo doesn’t own shares in any companies mentioned.