Ascendas Real Estate Investment Trust (SGX: A17U), Singapore’s largest listed business space and industrial real estate investment trust (REIT), released its results for the quarter ended 30 June 2019.
Ascendas REIT’s distribution per unit (DPU), the most important metric for a REIT, came in flat compared to the corresponding period last year. With that said, here are three things investors should take note of.
Positive rental reversion
Its Singapore and Australia portfolios achieved a +3.0% and +0.2% rental reversion rate during the quarter. A positive rental reversion means that the REIT will be able to collect higher rent from new leases signed compared to the expiring leases.
The rental reversion, especially in its Singapore portfolio, will contribute to organic rental income growth in the next few quarters.
Possible muted industrial rental growth
Despite the positive rental reversions achieved this quarter, management highlighted that demand for Singapore’s industrial space remains muted. The manufacturing sector shrank 3.8% from a year ago, while the Singapore government expects GDP growth for 2019 at just 1.5% to 2.5%.
Coupled with an excessive new supply of industrial property space over the last few years, rental rates are expected to remain subdued. As industrial properties in Singapore make up around 45% of the REIT’s total assets by property value, the tepid demand in this sector could be a drag on future earnings.
Business parks could be the saving grace
However, the REIT’s managers said that properties in the business and science park segment can serve the needs of industries in the “new economy”. As such it is hopeful that this segment will remain a key growth area for Ascendas REIT.
The REIT owns 23 properties located in business parks or science parks, making up 42% of the Singapore portfolio.
Near-term challenges but long-term outlook remain sound
Despite the near term challenges, Ascendas REIT’s long term prospect remains solid. The REIT has been a model of consistency in the past, increasing its DPU consistently each year. The team behind the REIT also has a track record of making prudent capital recycling decisions by divesting low-yield assets at opportune times, while purchasing growth assets that have been accretive to distributions.
On 18 July, the REIT also announced that it had proposed the sale of one of its Singapore properties, 8 Loyang Way, for S$27 million, which was 14.4% higher than the market value and 8% higher than the purchase price. While this is a small sale considering the size of the REIT’s total portfolio, the sale should still lift the group’s book value per share slightly.
On top of that, its entry into the UK last year has also diversified its portfolio geographically. All things considered, investors can sleep easy knowing Ascendas REIT has a large and diversified portfolio with an extremely capable management team behind it.
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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 Jeremy Chia does not own shares in Ascendas Real Estate Investment Trust. The Motley Fool Singapore has recommended shares of Ascendas Real Estate Investment Trust.