Ascendas Real Estate Investment Trust (SGX: A17U), also known as A-REIT, released its fourth-quarter and full-year 2019 (Q4 and FY 2019) earnings yesterday. A-REIT is one of the first REITs to list in Singapore, and it owns 171 industrial properties spread across Singapore, Australia, and the United Kingdom. A-REIT reported a decent set of earnings while distribution per unit remained stable.
Here are nine takeaways from A-REIT’s full-year earnings release.
1. Gross revenue increased 2.8% year on year for FY 2019 to S$886.2 million from S$862.1 million, mainly attributed to the UK portfolio acquired in calendar year 2018, Australian properties acquired in calendar year 2017 and 2018, as well as redeveloped properties in Singapore (Schneider Electric Building and 20 Tuas Avenue 1) completed in June 2017 and April 2018, respectively.
2. Net property income (NPI) increased by 3.2% year on year to S$649.6 million from S$629.4 million. This was underpinned by the increase in gross revenue. Higher property operating expenses due to new acquisitions and deployment of the new operating command centre (supporting multiple buildings in Singapore) were offset by property tax savings due to downward adjustments in the annual value of certain properties.
3. The total amount available for distribution rose by 3.8% year on year to S$485.7 million, and DPU for FY 2019 increased by a marginal 0.3% year on year to 16.035 Singapore cents. However, the total distribution for the fourth quarter of 2019 increased by 12.7% year on year, and DPU for Q4 2019 increased by a decent 6.1% from 3.91 Singapore cents to 4.148 Singapore cents.
4. If we take Q4 2019’s DPU as the new DPU after acquisitions and asset enhancement initiatives (AEI), and annualised it, we get a full-year DPU of 16.59 Singapore cents. Using the share price of S$3.01 as of market close on 29 April 2019, the forward dividend yield for the REIT is 5.5%.
5. A-REIT’s properties are valued at S$11.1 billion, with 98 properties in Singapore, 35 in Australia, and 38 in the United Kingdom. Singapore accounts for 79% of the portfolio by value, and it remains the dominant contributor to the REIT’s gross revenue. Australia and the UK make up 14% and 7% by value of the portfolio, respectively.
6. The REIT’s aggregate leverage stood at 36.3%, with available debt headroom of S$700 million before the REIT reaches the 40% level. Average debt maturity improved to 4.0 years, up from 3.6 years in the previous quarter and 3.2 years during the same period last year.
7. Overall portfolio occupancy stood at 91.9% as of 31 March 2019. This was slightly higher than the previous quarter’s 91.3% occupancy and was mainly due to slightly improved occupancy for the Singapore portfolio at 88.3% compared to 87.3% in the previous quarter. Rental reversion for FY 2019 was 3.7% on an overall portfolio basis and 6.6% for Q4 2019. Portfolio weighted average lease expiry (WALE) was 4.2 years and is well-spread, with some leases extending beyond 2032. About 16.3% of the gross rental income is due for renewal in fiscal year 2020, and management is actively marketing the space to potential tenants.
8. For ongoing projects, A-REIT is spending around S$35 million on the redevelopment of 25 & 27 Ubi Road 4, with an estimated completion date for the first quarter of fiscal year 2022. There are three AEI ongoing, at Serangoon North Avenue 4, Plaza 8 and ONE @ Changi City, costing an estimated S$21.5 million. The targeted completion dates for these AEI range from the third to fourth quarter of fiscal year 2020.
9. William Tay, CEO and executive director of the manager, said:
“Ascendas REIT continues to deliver a steady performance amid the current market uncertainties. During the year, we expanded our overseas investments to include UK to achieve a more diversified and sustainable income stream. Moving forward, we plan to transform some of our properties at the opportune time to be future ready. We will also continue with our overseas growth strategies and unlock values in our assets to strengthen the portfolio further.”
With A-REIT’s capital recycling strategy, asset redevelopment plans and AEI, the REIT seems poised to continue to do well. Positive rental reversions should continue to drive improvements in DPU, while high occupancy rates and a relatively long WALE provide income certainty for the REIT’s portfolio.
The key risk for the REIT are the leases that are due to expire in the current fiscal year (FY 2020), that make up 16% of gross rental income. If management does not manage to find suitable tenants for these expiry leases, or if these leases experience negative rental reversion, there is a probability that the REIT may face declining revenue and NPI.
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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in Ascendas Real Estate Investment Trust.