Among the 5 REITs and business trusts sponsored by CapitaLand Investment Limited (SGX:9CI), I am invested in 3 of them: CapitaLand Ascendas REIT, CapitaLand India Trust (which is invested in business parks, industrial and logistics facilities, and data centre developments in India), and CapitaLand Integrated Commercial Trust (where its portfolio comprises of retail, office, and integrated development properties in Singapore, Germany, and Australia).

Both CapitaLand India Trust, as well as CapitaLand Integrated Commercial Trust have released their annual reports, and you can read my summaries via the respective links:

CapitaLand Ascendas REIT's Annual Report for FY2023

Yesterday (02 April 2024) morning, CapitaLand Ascendas REIT (SGX:A17U), or CLAR for short, have published its annual report for the financial year ended 31 December 2023 (i.e., FY2023). For those who are hearing of the REIT for the first time, here’s a quick introduction: it is Singapore’s first and largest-listed business space and industrial REIT. Its portfolio currently comprises 227 properties in Singapore, Australia, the United States, as well as in the United Kingdom/Europe valued at S$16.9 billion.

In this post, you will find my summary of the key points to take note of in the REIT’s latest annual report, along with details of its upcoming annual general meeting:

Summary of CapitaLand Ascendas REIT’s Annual Report

Key Financial Highlights:

  • Gross revenue rose 9.4% year-on-year (y-o-y) to S$1,479.8 million (FY2022: S$1,352.7 million) mainly due to acquisitions completed in the year, as well as higher occupancy and positive rental reversions achieved in Singapore.
  • Net property income surpassed S$1 billion for the first time since the REIT’s listing in 2002, at S$1,023.2 million (FY2022: S$968.8 million). In percentage-terms, it grew by 5.6%, consistent with the increase in gross revenue but partially offset by higher operating expenses mainly due to higher utility expenses, and higher property taxes related to the Singapore portfolio.
  • Total amount available for distribution declined by 1.4% y-o-y to S$654.4 million (FY2022: S$663.9 million) mainly due to higher interest expenses as a result of the higher interest rate environment and higher borrowings, while distribution per unit (DPU) fell by 4.0% to 15.160 cents (FY2022: 15.798 cents) as a result of a lower amount available for distribution, and an enlarged unit base (due to a private placement exercise done in May 2023 to fund investments, a redevelopment, and repay debt).

Portfolio Performance Highlights:

  • Overall portfolio occupancy was at a healthy level of 94.2%, with a positive rental reversion of +13.4% achieved for leases renewed in FY2023 (with its Singapore portfolio rental reversion at +13.8%, Australia average rental reversion at +19.4%, US average rental reversion at +10.7%, and UK rental reversion at +1.6%).
  • In 2023, CLAR embarked on a number of acquisitions to fortify and deepen its presence in existing markets:
    • Singapore: 622 Toa Payoh Lorong 1 in January [at S$104.8 million], Buroh Lane in February [S$191.9 million], and The Shugart in May [at S$218.2 million];
    • United Kingdom: The Chess Building in August [at S$209.4 million];
    • Australia: MQX4 (the business space property is currently under development) in October [at S$161.0 million].
  • Completed Convert-to-Suit and Asset Enhancement Initiatives (AEIs):
    • Singapore: The Alpha [completed in September 2023]
    • United States: 6055 Lusk Boulevard [completed in December 2023]
  • Ongoing Redevelopments and AEIs in its Singapore properties, along with estimated completion date in square brackets:
    • Redevelopments: 1 Science Park Drive [Q2 FY2025], 27 IBP (formerly known as iQuest@IBP) [Q1 FY2026], 5 Toh Guan Road East [Q4 FY2025];
    • AEIs: Pacific Tech Centre [Q3 FY2024], 80 Bendemeer Road [Q1 FY2025].
  • Divestments:
    • Singapore: KA Place, a high-specification industrial building, for S$35.4 million, representing a 55% premium to its market valuation;
    • Australia: 3 logistics properties in Brisbane divested in 2024 for S$64.2 million, translating to a premium of 6.2% over their market valuations.
  • As at 31 December 2023, 64% of its investment properties are in Singapore, with the remaining 36% of its investment properties in Australia, the United States, and in the United Kingdom/Europe.

Capital Management:

  • Aggregate leverage remains at a healthy level of 37.9%. Based on this level, it has a large debt headroom of about S$4.3 billion before it reaches the regulated limit of 50.0%, allowing the REIT to seize on investment opportunities when they arise.
  • 79.1% of borrowings are at fixed interest rates for a weighted average duration of 3.5 years, with the REIT also maintaining a high level of natural currency hedge of approximately 81% for overseas investments to minimise the effects of adverse exchange rate fluctuations.
  • CLAR continues to maintain its A3 issuer rating from Moody’s.

Updates on the REIT’s Sustainability Goals:

  • CLAR’s sustainability goals are aligned with CapitaLand Investment’s 2030 Sustainability Master Plan (SMP), and this involves the REIT acquiring more green-certified buildings, proactively managing its assets and operations to enhance efficiency and performance, as well as future-proof its portfolio with selective redevelopments to incorporate innovative solutions and green certification requirements at the design stage.
  • Of the 4 properties acquired in FY2023, 622 Toa Payoh Lorong 1 is a BCA Green Mark GoldPLUS high-specifications industrial property, and for the remaining 3 properties (namely The Shugart and 1 Buroh Lane in Singapore, and The Chess Building in the UK), the REIT intends to obtain green certifications for them. It also seeks to achieve 6-Star Green Star and 5.5-Star NABERS certifications for MQX4 in Australia.
  • For existing properties, solar panels have been installed in 22 Singapore properties – this represented 29% of Singapore portfolio’s gross floor area (GFA), and the REIT now have one of the largest combined solar panel installations in the country for a real estate company.
  • As at 31 December 2023, the percentage of green certified properties accounts for 46% of CLAR’s total portfolio GFA.

Looking Ahead:

  • Uncertain outlook for inflation, geopolitical tensions, and risk of faltering growth in China will continue to present challenges to tenants’ businesses and CLAR’s operating costs.
  • Manager will leverage its financial management and operational strength to stay responsive to changing market conditions and tenant requirements.

Details of CapitaLand Ascendas REIT’s Upcoming Annual General Meeting

When? Friday, 26 April 2024
Time? 3.00pm
Where? Big Picture Theatre, Level 9, Capital Tower, 168 Robinson Road, Singapore 068912

Unitholders have the option to attend the meeting physically (no need to pre-register if your units are held in your CDP account; otherwise, you will need to inform your brokerage to appoint you to attend the meeting as a proxy), or virtually (you will need to pre-register here by 3.00pm on 23 April 2024).

I will be attending the meeting virtually and post a summary of it (for the benefit of those who aren’t able to attend) in due course.

Closing Thoughts

Despite headwinds posed by the high interest rate environment, the REIT’s management still continued with its acquisition activities, and this helped in its financial performances (with its gross revenue and net property income growing by 9.4% and 5.6% respectively; particularly, its net property income hit S$1 billion for the first time since its listing – coming at at time like this, it makes this achievement all the more remarkable).

Portfolio occupancy was also maintained at a very high level of 94.2%, with rental reversion for renewed leases at a positive double-digit percentage at +13.8% (which is another solid achievement, given the current economic situation). Debt profile remains healthy at 37.9%, with a very good debt headroom for the REIT to embark on further yield-accretive acquisitions.

The only slight negative was in its DPU, which fell by 4.0% due to an enlarged unit based as a result of a private placement which the REIT had embarked on in May 2023 to raise funds for acquisitions, redevelopment, and repayment of existing borrowings. However, with interest rates already at its peak, and likely to come down in the next few years ahead (and a reduction in finance costs going towards higher distribution payout), my opinion as far as DPU is concerned for FY2024 is that it will at least be the same as the amount paid out in the FY2023 (I’m being conservative here), with improvements to be seen in the subsequent years.

With that, I have come to the end of my sharing of summary of CapitaLand Ascendas REIT’s latest annual report. I hope you have found the contents presented in this post useful, and do take note that all the opinions expressed above are purely for educational purposes only. 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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