Ascendas REIT (SGX: A17U), or A-REIT, is Singapore’s largest listed industrial REIT, with investment properties under management valued at S$11.1 billion. The properties include a good mix of business and science parks, light industrial properties, and integrated industrial developments. A-REIT has a tenant base of 1,360 international and local companies from a broad range of industries, and major tenants include Citibank, DBS, and JP Morgan.
A-REIT is one of the oldest REITs in Singapore, having been listed since 2002, and has survived two major crises: that of the SARS outbreak in 2003-2004 and the Global Financial Crisis in 2008-2009. While the REIT is now much larger and diversified, this does not diminish its attractiveness as an investment or as a dividend stock. Here are four key reasons why I believe A-REIT continues to be an attractive yield stock.
1. A large number of properties in diverse locations
A-REIT’s portfolio consists of 98 properties in Singapore, 35 properties in Australia, and 38 properties in the UK. A large number of properties and diverse locations means the REIT is insulated from troubles affecting any one region, and no single property within the portfolio accounts for more than 5.3% of A-REIT’s monthly gross revenue – reducing the risk of single tenant concentration.
2. Its portfolio is still growing in size
Despite A-REIT’s portfolio being so large, it has still managed to grow through acquisitions in the last fiscal year. The portfolio went from 131 properties to 171 properties thanks to the acquisition of 38 logistics properties acquired in the UK and Australia in August and October 2018, respectively, and two re-developed properties in Singapore. This was the key reason for gross revenue growing by 2.8% year-on-year for FY 2018-2019 to S$886.2 million.
Moving forward, with A-REIT’s aggregate leverage ratio at 36.3% (as of 31 March 2019), this means the REIT still has room to borrow more in order to acquire, as it is still below the statutory gearing limit of 45% for REITs.
3. High portfolio occupancy
Portfolio occupancy remained high in all three territories, and overall portfolio occupancy was at 91.9% at fiscal year-end. This was higher than a quarter ago, when occupancy was 91.3%, and also higher on a year-on-year basis from 91.5%. Singapore’s occupancy level dipped slightly from 89.5% to 88.3% over a year ago, but it still remains respectably high. High portfolio occupancy is a strong indication of the quality and good location of A-REIT’s property assets.
4. Development, redevelopment, and AEI potential
A-REIT had clinched a contract for a build-to-suit development for a new headquarters for Grab, with a total development cost of S$181.2 million. The expected NPI yield is 6.4%. Meanwhile, 25 and 27 Ubi Avenue 2 are also being redeveloped and upgraded and will be re-positioned to “high-specifications industrial.” Over at 52 and 53 Serangoon North Avenue 4, asset enhancement initiatives (AEIs) are being carried out to upgrade and enhance the buildings at a cost of S$8.5 million.
These ongoing initiatives demonstrate how A-REIT is able to add value for unitholders even in the absence of acquisitions. Sprucing up and upgrading properties enhances their appeal and increases their NPI yield, which will benefit unitholders.
The above four points provide clear evidence for A-REIT being a great investment. At the last traded price of S$3.11, the REIT offers a historical dividend yield of 5.2%. One of the main risks is that rental reversion will be flat for the fiscal year 2019-2020 thanks to the over-supply of industrial property in Singapore. The REIT pointed this out in its FY 2018-2019 presentation, so investors would have to look for other areas for growth, such as AEIs or mergers and acquisitions.
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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of Ascendas REIT. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.