It has been a challenging year for Singapore’s real estate investment trusts (REITs) in 2022 amid the rising interest rate environment.
This is reflected in the sharp decline of share prices for the majority of Singapore REITs.
However, the recent positive earnings released by some of Singapore’s REITs reflects the resilience and asset quality of these REIT players.
One such big player is CapitaLand Ascendas REIT (SGX: A17U), which has just reported solid earnings for Q3 FY2022.
Here are some of the key highlights of the REIT’s earnings results.
1. Portfolio occupancy continues to improve
CapitaLand Ascendas REIT reported another improvement in its portfolio occupancy to 94.5% in Q3 FY2022, led by higher take-up in Australia and the UK.
The demand for logistics spaces has supported the improvement in portfolio occupancy.
In Singapore, the portfolio remains relatively stable at 91.8%, supported by new demand from IT & data centres, electronics and lifestyle, retail, and consumer product sectors.
However, US portfolio occupancy slipped to 94.8% due to lower occupancies within its business space portfolio.
Source: CapitaLand Ascendas REIT 3Q 2022 Business Update
2. Positive rental reversion will offset inflationary pressure
Source: CapitaLand Ascendas REIT 3Q 2022 Business Update
During Q3 FY2022, CapitaLand Ascendas REIT’s portfolio rental reversion remained positive at 5.4%.
It is still a healthy rental reversion, although it was at a slower pace than the 13.2% rental reversion recorded in the previous quarter.
There were no renewals in the UK and Europe markets, but positive rental reversions were seen across Singapore, Australia and the US.
In Singapore, CapitaLand Ascendas REIT achieved positive rental reversion of 4.4%, supported by the 14.6% at its logistics properties.
Similarly, there were strong rental reversions in the US at 48.0%, supported by 10.6% increase in business space and 60.0% increase in logistics.
3. Healthy balance sheet to weather rising interest rate
Source: CapitaLand Ascendas REIT 3Q 2022 Business Update
As of 30 September 2022, the aggregate leverage of CapitaLand Ascendas REIT stood at 37.3%.
This represents an increase from the 36.7% level as of 30 June 2022 but it still remains at a healthy level.
Based on the Monetary Authority of Singapore’s (MAS) aggregate leverage limit of 50%, there is still an available debt headroom of S$4.4 billion.
Aside from that, the fixed rate debt as a percentage of total debt (at 78%) will also help to mitigate the impact of rising interest rates.
Source: CapitaLand Ascendas REIT 3Q 2022 Business Update
Looking at its maturity debt profile, we can see that the longest debt will be maturing in FY2032 while its average debt maturity stood at 3.5 years.
This will provide some leeway for CapitaLand Ascendas REIT to manage its debt in this rising interest rate environment.
The REIT also has access to green financing, which stood at S$1.5 billion and accounts for 23% of total borrowings.
4. Attractive distribution yield
One of the advantages of investing in REITs is the income received during volatile times.
As CapitaLand Ascendas REIT has a strong distribution track record, its forward distribution yield of 5.9% is quite attractive for long-term investors.
While the rising interest rate will erode the distribution yield, the impact will be manageable.
The management has guided that a 50 basis point (bp) increase in the interest rate is expected to have a pro forma effect of S$7.0 million decline in terms of distribution, or a 0.17 cents decline in distribution per unit (DPU).
Source: CapitaLand Ascendas REIT 3Q 2022 Business Update
5. New investment in Singapore
Source: CapitaLand Ascendas REIT 3Q 2022 Business Update
CapitaLand Ascendas REIT has also announced the acquisition of two properties in Singapore worth a total of S$296.7 million.
The property at 622 Toa Payoh Lorong 1 is a high-tech campus for healthcare and technology with a six-storey building comprising laboratory, research and development (R&D), warehouse and ancillary office space.
Meanwhile, the 1 Buroh Lane property is a 5-storey ramp up logistics distribution centre offering chiller/freezer, air-conditioned and ambient storage space as well as ancillary office space.
The acquisition of 1 Buroh Lane represents CapitaLand Ascendas REIT’s maiden foray into the cold storage facility in Singapore.
The two acquisitions are expected to be earnings accretive as well, which would boost DPU in the long term.
Gradually invest during market weakness
The selloff for CapitaLand Ascendas REIT is in line with the weak sentiment and shift towards risk-free assets, such as bonds.
However, I believe that long-term investors should take advantage of the market weakness to accumulate shares in CapitaLand Ascendas REIT to benefit from its upside potential over the long term.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
