CapitaLand Ascendas REIT

Stock Analysis of CapitaLand Ascendas REIT in 2023

Analysis of CapitaLand Ascendas REIT

This is my stock analysis of CapitaLand Ascendas REIT (SGX:A17U) in 2023. Recently, CapitaLand Ascendas REIT (CLAR) has been in the limelight because its share price has fallen as much as 8.68% within a month. The REIT has fallen to as low as S$2.62 in 6 months which is near to its 52 week low of S$2.45. As I am not familiar with CapitaLand Ascendas REIT, let me do my analysis to find out whether this can potentially be an opportunity or crisis?

A quick search on CapitaLand Ascendas REIT portfolio show that the REIT has properties in Singapore, Australia, the United States, and the United Kingdom/Europe. These properties house international and local companies from a wide range of industries and activities, including data centres, information technology, engineering, logistics and supply chain management, biomedical sciences, financial services (back room office support), electronics, government and other manufacturing and services industries. In summary, CapitaLand Ascendas REIT has a multi-asset portfolio.

Financial Summary

Since there is only a business update by CapitaLand Ascendas REIT in 1Q 2023, let us look at its FY2022 financial results.

CapitaLand Ascendas REIT Full Year FY2022 Financial Results

In FY2022, Gross Revenue grew 10.3% as compared to FY2021. The increase was mainly driven by acquisitions.

Net Property Income (NPI) correspond with the increase in gross revenue, partially offset by the increase in utilities expenses in Singapore.

Distribution Per Unit (DPU) increase 3.5% year on year to 15.798 cents.

FY2022
(S$’000)
FY2021
(S$’000)
Change
Gross Revenue 1,352,686 1,226,525 10.3%
Net Property Income 968,753 920,750 5.2%
Property expenses
(383,933) (305,775) 25.6%
Amount Distributable To Unitholders 663,901 629,981 5.4%
Distribution Per Unit (“DPU”) (cents) 15.798 15.258 3.5%

Debt

As of 31st March 2023, the aggregate leverage stood healthy at 38.2%. This was 1.9% higher than the aggregate leverage of 36.3% as of 31st December 2022. There is still available debt headroom of estimated S$4.2b to reach Monetary Authority of Singapore’s aggregate leverage limit of 50.0%.

The REIT also had an issuer rating by Moody’s of A3. If you wonder what A3 rating means, A3 means CapitaLand Ascendas REIT is of investment grade. It signifies that the issuer has financial backing and some cash reserves with a low risk of default.

In terms of debt maturity, it is well spread with the longest debt maturing in FY2032. Average debt maturity stood healthy at 3.2 years.

CapitaLand Ascendas REIT 1Q2023 Debt Maturity Profile

To mitigate against sudden rate hikes, an estimated 77% of CapitaLand Ascendas REIT’s borrowings are based on fixed rates with an average term of 3.2 years. A 100 bps increase in interest rate on variable rate debt is expected to have a pro forma impact of S$14.8 m decline in distribution or 0.35 cents decline in Distribution Per Unit (DPU).

S$660m of borrowings are due to be refinanced in FY2023. A 100 bps increase in interest rate on refinancing is expected to have a pro forma impact of S$6.6 m decline in distribution or 0.16 cents decline in Distribution Per Unit (DPU).

Occupancy

CapitaLand Ascendas REIT 1Q2023 Occupancy

As of 31st March 2023, CapitaLand Ascendas REIT’s overall portfolio occupancy stood healthy at 94.4%. To further break the occupancy down, Singapore, United States, Australia and United Kingdom/Europe’s occupancy stood at 92.3%, 92.5%, 99.3% and 99.5% respectively.

CapitaLand Ascendas REIT had recently completed two acquisitions worth S$296.7m in Singapore. Thus, Singapore’s occupancy improved to 92.3% boosted by newly acquired 622 Toa Payoh Lorong 1 and 1 Buroh Lane. Full occupancy was also achieved at 35 Tampines Street 92 which was vacant as at 31 Dec 2022. The property is now fully leased to a single tenant.

In terms of occupancy, Australia and United Kingdom/Europe remained high.

Distribution History

As you can see from the table below, CapitaLand Ascendas REIT has been consistently paying dividends. The REIT was also able to grow its DPU year-on-year from FY2019 to FY2022.

CapitaLand Ascendas REIT Distribution History

Current Dividend Yield

CapitaLand Ascendas REIT Share Price 9 June 2023

Based on the current share price of S$2.63 and FY2022 Distribution Per Unit of 15.798 cents, this translate to a current dividend yield of 6.01%.

Summary of My Stock Analysis of CapitaLand Ascendas REIT in 2023

As usual, here are the pro and cons.

Pros

  • Gross Revenue grew 10.3% in FY2022 as compared to FY2021.
  • Distribution Per Unit (DPU) increase 3.5% year on year to 15.798 cents.
  • CapitaLand Ascendas REIT’s overall portfolio occupancy stood healthy at 94.4% although I hope it can be better.
  • Aggregate leverage stood healthy at 38.2%.
  • Debt maturity is well spread.
  • Estimated 77% of borrowings are based on fixed rates with an average term of 3.2 years.
  • REIT was also able to grow its DPU year-on-year from FY2019 to FY2022.
  • Current dividend yield of 6.01%.

Cons

  • Singapore occupancy is disappointing at 92.3%.
  • Exposure to data centre. Recently one of MIT tenant file for bankruptcy which causes an alarm to other REITs where they have data centres in their portfolio.

I could not find any negative news that cause the continued decline in share price of CapitaLand Ascendas REIT. I believe investors are shunning this REIT as interest rate rise.

The recent decline in share price can be an opportunity but bearing the risks involve such as further interest rate hikes, I would always advise investors to buy in tranches.

If you know of any news impacting the share price, please feel free to share!

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