Formerly known as just Ascendas REIT, CapitaLand Ascendas REIT (SGX:A17U) is Singapore’s first and largest listed Business Space and Industrial REIT.
The REIT focuses on tech and logistics properties in developed markets. Currently, its portfolio comprises 230 properties across 3 key segments: (i) Business Space and Life Science, (ii) Logistics, and (iii) Industrial and Data Centres, located in the developed markets of Singapore, the United States, Australia, and the United Kingdom/Europe.
After market hours this evening (31 July 2023), the REIT have made available its results for the first half of FY2023, and in this post, you will find my review of its financial performance, portfolio occupancy and debt profile, and also its distribution payout to unitholders.
Let’s get started…
Financial Performance (1H FY2022 vs. 1H FY2023)
The following table is CapitaLand Ascendas REIT’s financial performance for the first half of FY2023, compared against that reported in the same time period last year (i.e., 1H FY2022):
| 1H FY2022 | 1H FY2023 | % Variance | |
| Gross Revenue (S$’mil) | $666.5m | $718.1m | +7.7% |
| Property Operating Expenses (S$’mil) | $189.6m | $209.3m | +10.4% |
| Net Property Income (S$’mil) | $476.9m | $508.8m | +6.7% |
| Distributable Income to Unitholders (S$’mil) | $330.7m | $327.5m | -1.0% |
My Observations: In my opinion, its gross revenue and net property income were still pretty much stable, where they grew by mid-single digit percentages (by 7.7% and 6.7%) respectively. On the other hand, slight negatives were seen in the double-digit percentage increase in its property operating expense, as well as a 1.0% dip in its distributable income to unitholders.
The growth in the REIT’s gross revenue and net property income can be attributed to contributions from the acquisition of the Chicago portfolio (comprising of 7 logistics properties located in Chicago, US) in June 2022, acquisition of the Singapore portfolio (comprising of 1 industrial property acquired in January 2023, 1 logistics property acquired in February 2023, and 1 business space property acquired in May 2023) in 1H FY2023, and the completion of the acquisitions of 500 Green Road and 7 Kiora Crescent in Australia in February 2022. This is in addition to higher utilities income recorded in its Singapore properties, along with an increase in service charge revenues.
On the other hand, the 10.4% increase in its property operating expenses was due expenses incurred by properties that were acquired and completed in FY2022, and during the current financial period, coupled with higher utilities cost incurred in Singapore.
The 1.0% dip in its distributable income to unitholders was due to a lower distributable income to unitholders, along with a higher interest expense resulting from rising interest rates.
Portfolio Occupancy (Q1 FY2023 vs. Q2 FY2023)
Next, let us have a look at the REIT’s portfolio occupancy profile – where I will be comparing the statistics reported in the current quarter under review (i.e., Q2 FY2023 ended 30 June 2023) against that reported in the previous quarter (i.e., Q1 FY2023 ended 31 March 2023) to find out if it has continued to remain resilient:
| Q1 FY2023 | Q2 FY2023 | |
| Portfolio Occupancy (%) | 94.4% | 94.0% |
| Rental Reversion (%) | +11.0% | +18.0% |
| Portfolio WALE (by Gross Revenue – years) | 3.8 years | 3.9 years |
My Observations: CapitaLand Ascendas REIT’s portfolio occupancy have remained very strong – of note is its positive rental reversion of an impressive +18.0% for new and/or renewed leases in the 2nd quarter – where rental reversion for leases in Singapore, United States, and Australia were at +19.5%, +11.0%, and +12.9% respectively.
However there was a slight dip in its portfolio occupancy by 0.4 percentage points (pp), as a result of slight declines recorded in occupancy rates in United States (from 92.5% in Q1 FY2023 to 92.1% in Q2 FY2023, mainly due to movements in Raleigh). The occupancy rate in Australia rose to a high of 99.5% (from 99.3% in Q1 FY2023) due to higher occupancy at Cargo Business Park, a logistics property in Brisbane.
Lease expiries were also well-spread out over the year – with just 6.9% of leases due for renewal in the 2nd half of FY2023, 16.4% of the leases due for renewal in FY2024, 20.1% of the leases due for renewal in FY2025, and the remaining 56.6% of the leases only due for renewal in FY2026 or later – providing a good level of income stability for the REIT over the next couple of years.
Debt Profile (Q1 FY2023 vs. Q2 FY2023)
In the current high interest rate environment, making sure that the REIT’s management maintains a healthy debt profile is crucial.
In this section, I will be reviewing CapitaLand Ascendas REIT’s debt profile by taking the statistics reported for the current quarter under review and compare them against that reported in the previous quarter 3 months ago (i.e., Q1 FY2023 ended 31 March 2023 vs. Q2 FY2023 ended 30 June 2023) as follows:
| Q1 FY2023 | Q2 FY2023 | |
| Aggregate Leverage (%) | 38.2% | 36.7% |
| Interest Coverage Ratio (times) | 4.7x | 4.3x |
| Average Term to Debt Maturity (years) | 3.2 years | 3.3 years |
| Average Cost of Debt (%) | 3.3% | 3.3% |
| % of Borrowings Hedged at Fixed Rates (%) | 77.0% | 81.5% |
My Observations: Aggregate leverage, at 36.7%, continues to remain very healthy. At its current level, there is an available debt headroom of approximately $4.8 billion before the regulatory limit of 50.0% is reached, providing the REIT flexibility to embark on more yield-accretive acquisitions as and when an opportunity to do so comes along.
In terms of its debt profile, it is well-spread out over the years – with 13.5% (or S$873m) of borrowings due for refinancing in the 2nd half of FY2023, 13.3% (or S$862m) of borrowings due for refinancing in FY2024, 13.0% (or S$842m) of borrowings due for refinancing in FY2025, and the remaining 60.2% (or S$3,888m) of borrowings due for refinancing only in FY2026 or later.
That said, with about 39.8% of borrowings due for refinancing from now till end-2025, where interest rates are likely to remain high (my guesstimate is any rate reductions will only come in 2024, and by end-2025, it will come down to around 3% and forming a ‘new normal’), the higher financing costs ahead may further impact its distribution payout to unitholders – where an 100 basis point increase in interest rate on variable debt (about 28.5%) is expected to have a pro forma impact of S$11.9m decline in distribution, or 0.28 cents decline in DPU.
Distribution Payout to Unitholders (1H FY2022 vs. 1H FY2023)
The management of CapitaLand Ascendas REIT declares a distribution payout to its unitholders on a semi-annual basis – once when it reports its results for the first half of the financial year (which is now), and once when it reports its results for the second half of the financial year.
For 1H FY2023, a distribution payout of 7.719 cents/unit was declared – a slight decline by 2.0% compared to the payout of 7.873 cents/unit declared in 1H FY2022, due to a larger unit base following the issuance of new units pursuant to the REIT’s private placement in May 2023.
However, take note that an advanced distribution of 6.141 cents/unit for the period between 01 January and 24 May 2023 had been paid out on 26 June 2023 ahead of its private placement exercise. Hence, you will only receive 1.578 cents/unit this time round – for the period between 25 May and 30 June 2023.
If you are a unitholder of the REIT, take note of the following dates on its distribution payout:
Ex-Date: 07 August 2023
Record Date: 08 August 2023
Payout Date: 01 September 2023
CEO William Tay’s Comments & Outlook (from the REIT’s Press Release)
“Our portfolio continued to record strong financial and operating performance across asset classes and geographies. Despite macroeconomic uncertainties, we maintained a high portfolio occupancy of 94.4% and achieved an average rental reversion of 18.0% for leases renewed during 2Q 2023. The Singapore logistics segment led the charge with a 39.1% reversion amidst a tight supply.
Looking ahead, we will continue to leverage our resilient balance sheet, operational capabilities, and diversified portfolio to safeguard and expand our business, while adopting a cautious approach due to the ongoing uncertainties in the global economy.”
Closing Thoughts
I felt that on the whole, CapitaLand Ascendas REIT’s latest set of results was a stable one – with one slight negative being the dip in distribution per unit due to higher borrowing costs, along with a higher unit base.
Apart from that, I felt that its gross revenue and net property income growth was pretty decent, its portfolio occupancy profile a very strong one (particularly its +18.0% of rental reversion for new and/or renewed leases for Q2 FY2023), and last but not least, its aggregate leverage of 36.7% as at 30 June 2023 was also a very healthy one.
With that, I have come to the end of my review of the blue-chip business space and industrial REIT’s results for the 1st half of FY2023. Hope you’ve found the information presented useful, and as always, do take note that all the comments above are for educational purposes only. You are strongly encouraged to do your own due diligence before you make any buy or sell decisions.
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Disclaimer: At the time of writing, I am a unitholder of CapitaLand Ascendas REIT.
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