Singapore’s first, and largest, listed business space and industrial REIT, CapitaLand Ascendas REIT (SGX: A17U), reported strong earnings results in Q4 FY2022.
I have previously written about the buying opportunity to accumulate CapitaLand Ascendas REIT on market weakness, since November last year.
Since then, the REIT’s unit price has gained by 13.7% to its current price of S$2.99 per unit.
If you are wondering if you should still buy CapitaLand Ascendas REIT after its share price recovery, here are five reasons why you should put it in your portfolio after its latest earnings release.
1. Double-digit revenue growth led by BTS developments in Singapore
CapitaLand Ascendas REIT reported strong gross revenue growth of 10.3% in fiscal year 2022 (FY2022), raking in S$1.35 billion.
The strong performance was mainly due to the completion of its built-to-suit (BTS) development for Grab Holdings Ltd’s (NASDAQ: GRAB) headquarters in Singapore as well as newly-acquired properties in Singapore, the UK, Europe, the US, and Australia.
Source: CapitaLand Ascendas REIT’s FY2022 Financial Results
2. Improved portfolio occupancy and positive rental reversion
CapitaLand Ascendas REIT’s strong financial performance was supported by improved portfolio occupancy and its positive rental reversion.
Portfolio occupancy rate hit a 10-year high of 94.6%, mainly due to improvements in its Singapore and Australia portfolios.
Source: CapitaLand Ascendas REIT’s FY2022 Financial Results
In Singapore, new leases executed at its logistics and industrial properties helped to boost its portfolio’s occupancy rate to 92.1% as of 31 December 2022, up from 91.8% a quarter ago.
Meanwhile, occupancy rate also improved to 99.4% from 99.1% during the same period for its Australia portfolio. This was mainly due to positive leasing momentum of the business space properties in Sydney.
There was, however, a slight decline in its occupancy rate in the US while Europe’s portfolio occupancy remained unchanged at 99.4%.
During FY2022, CapitaLand Ascendas REIT achieved a positive average rental reversion of 8.0% for leases that were renewed in multi-tenant buildings.
The average rental reversion for leases signed during Q4 FY2022 was also at 8.0%.
Source: CapitaLand Ascendas REIT’s FY2022 Financial Results
3. Strong financial position with around S$4.7 billion debt headroom
CapitaLand Ascendas REIT’s average leverage remains healthy at 36.3%, which remains comfortably below the MAS-imposed limit of 50.0%.
There is still available debt headroom of S$4.7 billion before it reaches the 50% limit, allowing CapitaLand Ascendas REIT to continue to tap borrowings for expansion.
Aside from that, CapitaLand Ascendas REIT has proactively managed its borrowing.
Source: CapitaLand Ascendas REIT’s FY2022 Financial Results
The weighted average tenor of debt outstanding increased to 3.7 years as of 31 December 2022, from 3.5 years 12 months before.
Meanwhile, the REIT’s debt maturity profile remained well spread out with less than 20% of debt due for renewal in any one year to minimise refinancing risks.
Like most REITs, CapitaLand Ascendas REIT saw an increase in its cost-of-borrowings in FY2022 amid the rising interest rate environment globally.
However, the weighted average all-in cost of borrowing remains at a manageable level of 2.5% in FY2022. This was mainly due to the high proportion of about 79% of borrowings on fixed rates.
4. Investments to improve portfolio value
Aside from the strong performance in FY2022, CapitaLand Ascendas REIT also continued to invest to improve its portfolio value.
In 2022, CapitaLand Ascendas REIT completed S$223.4 million worth of acquisitions.
Currently, there are five ongoing developments and asset enhancement initiatives (AEIs) worth S$617.4 million, which are expected to be completed between Q2 FY2023 and Q2 FY2025.
Post FY2022, CapitaLand Ascendas REIT acquired a high-tech industrial property at 622, Toa Payoh Lorong 1 and a cold storage facility at 1 Buroh Lane for S$104.8 million and S$191.9 million, respectively.
5. DPU rose 3.5% in FY2022
Distribution per unit (DPU) rose 3.5% to 15.798 cents for FY2022 due to the increase in net property income (NPI) and the absence of the Manager’s performance fee, which was partially offset by rising borrowing costs.
At its current level, it is trading at a 12-month forward distribution yield of 5.3%.
Resilient and diversified portfolio for long-term investors
CapitaLand Ascendas REIT owns a total of 227 properties worth S$16.4 billion as of 31 December 2022.
Its portfolio consists of business space and life sciences (48%), logistics (25%) and industrials and data centres (27%).
Given the strong financial performance in FY2022 and an expected positive rental reversion of mid- to single-digit range in FY2023, investors looking to build their wealth by investing into Singapore REITs should consider buying CapitaLand Ascendas REIT.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
