CapitaLand Ascendas REIT (SGX:A17U), or CLAR for short, is the 3rd CapitaLand REIT I have in my investment portfolio to release its business update for the 3rd quarter of the financial year ended 30 September (i.e., Q3 FY2023) after market hours today (27 October). The other 2 CapitaLand REITs in CapitaLand Integrated Commercial Trust and CapitaLand India Trust have made available their Q3 business updates last Thursday (26 October), and you can check them out via the respective links below:

For those of who who are new to investing, here’s a quick introduction about CapitaLand Ascendas REIT – it is Singapore’s first and largest business space and industrial REIT listed on the Singapore Exchange since November 2002. Its portfolio currently comprises of properties across 3 segments, namely Business Space and Life Sciences, Logistics, as well as Data Centres, located in the developed markets of Singapore, the United States, Australia, and the United Kingdom/Europe, with a total assets under management of S$17.2 billion.

As the REIT have switched to reporting its full financial results on a half-yearly basis, it only reported an update of its portfolio occupancy and debt profile this time round, both of which we will be looking at in this post:

Portfolio Occupancy (Q2 FY2023 vs. Q3 FY2023)

One of the things I like about CapitaLand Ascendas REIT is its high occupancy rate attained for its properties over the quarters.

So, did this trend manage to continue? Let us take a look at its portfolio occupancy profile in the table below, where you will find a comparison of the statistics reported for the current quarter under review (i.e., Q3 FY2023 ended 30 September), against that reported in the previous quarter 3 months ago (i.e., Q2 FY2023 ended 30 June):

Q2 FY2023Q3 FY2023
Portfolio Occupancy
(%)
94.0%94.5%
Rental Reversion
(%)
+18.0%+10.2%
Portfolio WALE (by Gross
Revenue – years)
3.9 years3.9 years

My Observations: On the whole, CapitaLand Ascendas REIT’s portfolio occupancy profile continues to remain resilient.

The 0.5 percentage point (pp) improvement in its portfolio occupancy can be attributed to growth in the occupancy rates for its properties in Singapore (up from 92.3% in Q2 FY2023 to 92.7% in Q3 FY2023) due to new take ups at 10 Toh Guan, Logitech, and The Aries, Sparkle and Gemini.

While rental reversion have weakened compared to the previous quarter, but in my opinion, it is still good. New and/or renewed leases for its Singapore, United States, and United Kingdom/Europe properties were at +9.8%, +8.5%, and +28.8% respectively.

Top 10 tenant contribute about 16.5% towards the REIT’s gross revenue, with its top tenant (in Singapore Telecommunications Limited) contributing 3.1%.

Finally, on lease expiries, for the final quarter of FY2023, only 1.7% of leases are due for renewal. Between FY2024 and FY2026, approximately 16-20% of leases are due for renewal each year.

Debt Profile (Q2 FY2023 vs. Q3 FY2023)

In view of the high interest rate environment we are in right now, no surprises that a REIT’s debt profile comes under heavy scrutiny by retail investors.

My preference is towards REITs that are able to maintain their aggregate leverage at 40% or below, as well as a high percentage of borrowings (at 80% or above) hedged to fixed rates (because this will help to mitigate the impacts of an increase in borrowing cost on distribution payouts).

In the table below, you will find a comparison of CLAR’s debt profile reported for the current quarter under review (i.e., Q3 FY2023 ended 30 September), against that reported in the previous quarter 3 months ago (i.e., Q3 FY2023 ended 30 June) to find out if it continues to remain healthy:

Q2 FY2023Q3 FY2023
Aggregate Leverage
(%)
36.7%37.2%
Interest Coverage
Ratio (times)
4.3x4.0x
Average Term to
Debt Maturity (years)
3.3 years3.3 years
Average Cost of
Debt (years)
3.3%3.3%
% of Borrowings Hedged
to Fixed Rates (%)
81.5%80.6%

My Observations: While the REIT’s aggregate leverage have inched up by 0.5pp, but at 37.2%, it is a very good headroom to the regulatory level of 50.0%.

On the percentage of borrowings hedged to fixed rates, at 80.6%, it is also a good percentage. As for the remaining 19.4% of unhedged borrowings, a 100 bps increase in interest rate is expected to have a pro-forma impact of S$12.6m decline in distribution, or 0.30 cents decline in DPU.

Looking at its debt maturity profile, it is well-staggered – with 8.8% (or S$592m) of borrowings due for refinancing in the final quarter of FY2023, 13.1% (or S$874m) of borrowings due for refinancing in FY2024, 12.6% (or S$841m) of borrowings due for refinancing in FY2025, 13.5% (or S$907m) of borrowings due for refinancing in FY2026, and the remaining 52% (or S$3,480m) of borrowings will only be due for refinancing in FY2027 or later.

Closing Thoughts

On the whole, it is a stable set of statistics for the REIT as far as its portfolio occupancy and debt profile are concerned (in my opinion) – for the former, the occupancy rates of its properties in all the geographical locations (i.e., Singapore, United States, Australia, as well as in United Kingdom/Europe) are all above 90%; for the latter, its aggregate leverage at 37.2% is a very healthy one. This is in addition to the REIT having 80.6% of borrowings hedged to fixed rates – which can provide some ‘protection’ from the high interest rate environment.

As the REIT’s management declares a distribution payout on a half-yearly frequency (once when it releases its 2nd quarter results, and once when it releases its 4th quarter results), no distribution payouts are being declared for the current quarter under review.

With that, I have come to the end of my review of CapitaLand Ascendas REIT’s latest business update for the 3rd quarter of the financial year 2023. I hope you have found the contents presented in this post useful, and at the same time, do take note that everything you have just read is purely for educational purposes only. They do not represent any buy or sell calls for the REIT’s units. You should always do your own due diligence before making 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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