Previously known as Ascendas REIT, CapitaLand Ascendas REIT (SGX:A17U) is Singapore’s first and largest listed business space and industrial REIT – at the time of writing, its property portfolio comprises a total of 230 business space and life science, logistics, along with industrial and data centre properties in the developed markets of Singapore, Australia, the United States, and the United Kingdom/Europe with a total assets under management of approximately S$16.5 billion. The REIT is also one of the constituents in Singapore’s benchmark Straits Times Index (STI) since June 2014.

Shortly after market hours this evening (31 October 2022), the blue-chip REIT have made available its business update for the third quarter of financial year 2022 ended 30 September 2022 – as the REIT has switched to reporting its full financial results on a half-yearly basis, for the current quarter under review, it only made available its portfolio occupancy and debt profile – both of which we will be look at in this post, along with my thoughts (as a unitholder of the REIT) about them.

Let’s begin:

Portfolio Occupancy (Q2 FY2022 vs. Q3 FY2022)

In the table below, you’ll find a comparison of the REIT’s portfolio occupancy for the current period under review (i.e. Q3 FY2022 ended 30 September 2022) against that reported in the previous quarter 3 months ago (i.e. Q2 FY2022 ended 30 June 2022) to find out whether or not it has remained resilient:

Q2 FY2022Q3 FY2022
Portfolio
Occupancy (%)		94.0%94.5%
Rental
Reversion (%)		+13.2%+5.4%
WALE (by Gross
Revenue – Years)		3.7 years3.9 years

My Observations: Compared to previous quarter, the blue-chip REIT’s portfolio occupancy have further strengthened – in my personal opinion, having a 94.5% overall portfolio occupancy rate is very resilient – which can be attributed to improvements in the occupancy rate for the REIT’s properties in Australia (up from 96.6% in Q2 FY2022 to 99.1% in Q3 FY2022), as well as in the United Kingdom/Europe (up from 97.7% in Q2 FY2022 to 99.4% in Q3 FY2022.)

Additionally, it’s good to note that despite the headwinds, the REIT still managed to record a positive rental reversion for new/renewed leases.

As far as lease renewals over the next couple of years, it is pretty well-spread out – with just 3.7% of the leases expiring in the final quarter of the current financial year 2022, 22.0% of the leases expiring in the next financial year 2023, 16.4% of the leases expiring in FY2024, and a huge bulk of the remaining leases (57.9%) expiring only in FY2025 and beyond – so in a way, there’s some form of ‘income stability’ here.

Debt Profile (Q2 FY2022 vs. Q3 FY2022)

Next, let us take a look at its debt profile where, just like how I have reviewed the REIT’s portfolio occupancy profile in the previous section, I will also be reviewing its debt profile by comparing the stats reported for the current quarter under review against that reported 3 months ago:

Q2 FY2022Q3 FY2022
Aggregate Leverage
(%)		36.7%37.3%
Interest Coverage
Ratio (times)		6.1x5.9x
Average Term to
Debt Maturity (years)		3.9 years3.5 years
Average Cost of
Debt (%)		2.1%2.2%
% of Borrowings Hedged
to Fixed Rates (%)		80.0%78.0%

My Observations: Unlike its portfolio occupancy profile, the REIT’s debt profile have weakened slightly when compared against the last quarter.

That said, its aggregate leverage, at 37.3% as at 30 September 2022, still remains a good distance away (of about S$4.4bn) from its regulatory limit of 50.0%. Its interest coverage coverage, at 5.9x, is very healthy as well.

Its debt maturity is also pretty well-staggered out over the next couple of years – with 10.3% (or S$660m) of its borrowings maturing in the final quarter of FY2022, 10.5% (or S$675m) of its borrowings maturing in the following financial year 2023, 13.8% (or S$885m) of its borrowings maturing in FY2024, and the remaining 65.4% (or S$4,208m) of its borrowings expiring in FY2025 or later – that said, with about 20.8% of its borrowings due from now till the end of next financial year, the REIT could be impacted by the rising interest rate hikes, and as a result, see its distribution payout being affected (where a 100bp change in interest rates will lead to a 2.2% drop in distribution payout based on the amount paid out in FY2021.)

Management’s Outlook (from the REIT’s Presentation Slides)

  • The heightened risk environment continues to put pressure on the global outlook. In addition to rising interest rates and inflation, the export bans by the US of certain advanced materials and technologies to China has added to the uncertainty and volatility in the global supply chains. The ongoing Russian-Ukraine war will continue to have some destabilising effect on global markets. These ongoing issues may have some impact on tenants’ businesses as well as on CapitaLand Ascendas REIT’s operating costs.
  • On a brighter note, we have maintained steady portfolio occupancy rate of 94.5% and positive rental reversions of 5.4% in 3Q FY2022. The Manager’s proactive portfolio management and prudent capital management will help to navigate and mitigate the rising utility and interest expenses. In this respect, we have implemented higher service charge for our Singapore leases from October 2022.
  • The Manager is confident that CapitaLand Ascendas REIT’s diversified and quality portfolio in developed markets should help it ride through this turbulent period.

Closing Thoughts

In my opinion, it is encouraging to note the improvements in the blue-chip industrial REIT’s portfolio occupancy profile – where the overall occupancy rates of its properties in the various geographical locations (in Singapore, Australia, United States, and also in United Kingdom/Europe) have recorded strong occupancy rates of above 90.0%. This is on top of its rental reversion of new/renewed leases at positive percentages.

On the other hand, its debt profile weakened slightly as a result of interest rate hikes. Also, with about 20% of its borrowings maturing from now till the end of the next financial year 2023, the REIT’s distribution payout to unitholders could suffer from a bit of impact from rising interest rates when they refinance the borrowings. But despite of that, its aggregate leverage (at 37.3%), coupled with its interest coverage (at 5.9x) still remains very healthy (in my opinion.)

With that, I have come to my review of Ascendas REIT’s latest third quarter business update. Hope you’ve found the contents presented above useful and as always, do note that all the opinions you’ve read about are purely mine which I’m sharing for educational purposes only. They do not constitute any buy or sell calls for the REIT’s units. You should always do your own due diligence before you make any investment decisions.

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Disclaimer: At the time of writing, I am a unitholder of CapitaLand Ascendas REIT.

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