CapitaLand Ascendas REIT’s 2H and FY2022 Results – What You Need to Know

February 3, 2023 admin

Yesterday evening (01 February 2023), CapitaLand Ascendas REIT (SGX:A17U), formerly known as just Ascendas REIT, have made available its results for the second half, as well as for the full year ended 31 December 2022 (i.e. FY2022.)

This post was originally posted here. The writer, Jun Yuan Lim is a veteran community member and blogger on InvestingNote, with a username known as @ljunyuan and has close to 2100 followers.

For those of you who may be unfamiliar with the REIT, here’s a brief introduction – CapitaLand Ascendas REIT is Singapore’s first and largest listed business space and industrial REIT. While the REIT’s properties are mostly in Singapore, it also has a business presence in Australia, United States, as well as in the United Kingdom/Europe. At the time of writing, the REIT has a total of 227 properties (across 3 key segments, namely business space and life sciences, logistics, as well as industrial and data centres), an asset under management of approximately S$16.4bn, and more than 1,720 tenants. Finally, the REIT is also one of the constituents in Singapore’s benchmark Straits Times Index (STI.)

In the rest of this post, you’ll read about my review of the blue-chip business space and industrial REIT’s latest financial performance, portfolio occupancy and debt profile, as well as distribution payouts.

Let’s begin:

Financial Performance (2H FY2021 vs. 2H FY2022, and FY2021 vs. FY2022)

In this section, let us take a look at CapitaLand Ascendas REIT’s financial performance for the second half of the current financial year under review compared against the same time period last year (i.e. 2H FY2021 vs. 2H FY2022), and then on a its results for the whole of the current financial year compared against that recorded for the whole of last year (i.e. FY2021 vs. FY2022):

2H FY2021 vs. 2H FY2022:

	2H FY2021	2H FY2022	% Variance
Gross Revenue (S$’mil)	$640.5m	$686.1m	+7.1%
Property Operating Expenses (S$’mil)	$165.3m	$194.3m	+17.5%
Net Property Income (S$’mil)	$475.2m	$491.8m	+3.5%
Distributable Income to Unitholders (S$’mil)	$319.0m	$333.2m	+4.4%

My Observations: I consider CapitaLand Ascendas REIT’s results for the 2nd half of FY2022 (compared against that in the same time period last year – i.e. 2H FY2021) to be a stable one.

The 7.1% growth in its gross revenue is due to full 6-months contribution from Grab Headquarters (Singapore) in July 2021, as well as from the 11 logistics properties in Kansas City (US) acquired in November 2021. This is on top of contribution from the completion of UBIX (Singapore) in January 2022, completion of 500 Green Road and 7 Kiora Crescent (Australia) in February 2022, and 7 logistics properties in Chicago (US) acquired in June 2022. Additionally, improved occupancy at certain properties in Singapore also contributed to the higher revenue.

The 17.5% jump in its property operating expenses – which can be attributed to the properties that were acquired and completed in FY2021, and during the current financial period under review (i.e. 2H FY2022), along with higher utilities cost incurred its properties in Singapore.

The REIT’s net property income grew at a smaller percentage (compared to its gross revenue) due to higher utilities expense in Singapore.

Finally, the 4.4% improvement in its distributable income to unitholders was due to an increase in net property income, reversal of tax and other trust expense accruals no longer required, absence of performance fee of $7.4m payable to the Manager in 2H FY2021, and partially offset by an increase in borrowing costs.

FY2021 vs. FY2022:

	FY2021	FY2022	% Variance
Gross Revenue (S$’mil)	$1,226.5m	$1,352.7m	+10.3%
Property Operating Expenses (S$’mil)	$305.8m	$383.9	+25.6%
Net Property Income (S$’mil)	$920.8m	$968.8m	+5.2%
Distributable Income to Unitholders (S$’mil)	$630.0m	$663.9m	+5.4%

My Observations: On a full-year basis, its results is also a stable one – where the 10.3% climb in its gross revenue was due to:

Full year contribution from the acquisition of 11 data centres in Europe in March 2021, acquisition of the remaining 75% interest in AF5PL that holds Galaxis (Singapore) in June 2021, completion of Grab Headquarters (Singapore) in July 2021, acquisition of 11 logistics properties in Kansas City, US, in November 2021;
Completion of UBIX (Singapore), in January 2022, 500 Green Road (Brisbane, Australia), and 7 Kiora Crescent (Sydney, Australia), in February 2022;
Acquisition of 7 logistics properties in Chicago, US, in June 2022;
Better performance from certain properties in Singapore

The REIT’s net property income saw a smaller percentage increase (by 5.2%, compared to a 10.3% increase in gross revenue) due to an increase in utilities expense in Singapore.

Finally, the 5.4% growth in its distributable income to unitholders was due to the increase in net property income, along with the absence of Manager’s performance fee, partially offset by an increase in borrowing cost.

Portfolio Occupancy Profile (Q3 FY2022 vs. Q4 FY2022)

When it come to reviewing a REIT’s portfolio occupancy profile, my preference is to take the statistics recorded for the quarter under review (in this case it is the fourth quarter of FY2022 ended 31 December 2022) compared against that recorded in the previous quarter 3 months ago (in this case it is the third quarter of FY2022 ended 30 September 2022) to find out whether it has continued to remain strong just like in the previous quarters and years – where its portfolio occupancy has been maintained at more than 90.0% most of the time:

	Q3 FY2022	Q4 FY2022
Portfolio Occupancy (%)	94.5%	94.6%
Rental Reversion (%)	+5.4%	+8.0%
Portfolio WALE (by Gross Revenue – years)	3.9 years	3.8 years

My Observations: As a unitholder, I’m very encouraged by the resilience of CapitaLand Ascendas REIT’s portfolio occupancy profile – particularly, its portfolio occupancy, at 94.6%, was a 10-year high. Also, the overall occupancy rate of its properties in the various geographical locations (Singapore, Australia, United States, and United Kingdom/Europe) were all above 90.0%.

It’s also very pleasing to note the REIT still managed to record even a stronger rental reversion on new and/or renewed leases for the current quarter under review (compared to the previous quarter) despite the economic headwinds.

Debt Profile (Q3 FY2022 vs. Q4 FY2022)

Especially in the current rising (and high) interest rate environment, making sure that the REIT’s debt profile continues to remain healthy becomes all the more important.

Just like how I have reviewed the REIT’s portfolio occupancy in the previous section, I will also be looking at its debt profile by comparing the statistics recorded in the current quarter under review (i.e. Q4 FY2022) against that recorded in the previous quarter (i.e. Q3 FY2022), and they are as follows:

	Q2 FY2022	Q3 FY2022
Aggregate Leverage (%)	37.3%	36.3%
Interest Coverage Ratio (times)	5.9x	5.2x
Average Term to Debt Maturity (years)	3.5 years	3.7 years
Average Cost of Debt (%)	2.2%	2.5%
% of Borrowings Hedged to Fixed Rates (%)	78.0%	79.4%

My Observations: The blue-chip REIT’s latest debt profile compared to the previous quarter was a mixed bag – some of the positives to note were improvements in its aggregate leverage, along with an increase in percentage of borrowings hedged to fixed rates, while some of the negatives include the increase in average cost of debt, along with the dip in interest coverage ratio.

Its debt maturity profile is well-staggered, with just 2.6% (or S$164m) of borrowings due for refinancing in FY2023, 10.8% (or S$669m) of borrowings due for refinancing in FY2024, 14.2% (or S$880m) of borrowings due for refinancing in FY2025, and the remaining 72.4% (or $4,497m) of borrowings due for refinancing only in FY2026 or later.

That said, with about 27.6% of borrowings due for refinancing from now till end of FY2025, the REIT will also not be spared from the headwinds from higher borrowing costs – where a 50bps increase in interest rate is expected to have a pro forma impact of S$6.5m decline distribution (or 0.15 cents decline in DPU.)

Distribution Payout to Unitholders

The management of CapitaLand Ascendas REIT declares a distribution payout to unitholders on a semi-annual basis – once when they release their results for the first half of the financial year, and once when they release their results for the second half of the financial year (which is this time round.)

For the second half of FY2022, the REIT’s management have declared a distribution pay out of 7.925 cents/unit – a 4.3% increase from the payout of 7.598 cents/unit declared in the same time period last year (i.e. 2H FY2021.)

Together with its payout of 7.87 cents/unit in the first half of the year, its total payout for the entire year amounts to 15.795 cents/unit – when compared against its distribution payout for the whole of last year (which is 15.258 cents/unit), this represents a 3.5% increase.

Finally, if you are a unitholder of the blue-chip business space and industrial REIT, the following are dates on its payout you need to take note of:

Ex-Date: 09 February 2023
Record Date: 10 February 2023
Payout Date: 07 March 2023

Management’s Comments & Outlook (from the REIT’s Press Release)

CEO Mr William Tay on the REIT’s FY2022 Performance:

“We achieved strong results across all our asset classes despite the uncertain macroeconomic conditions. Our portfolio occupancy hit a 10-year high of 94.6% and we achieved high rental reversion of 8% for leases renewed in FY2022. Together with our proactive and disciplined approach to capital management, DPU rose by 3.5% to 15.798 cents in FY2022.

Moving forward, we will continue to leverage on our strong financial position, operational capabilities, and diversified portfolio to safeguard and expand our business, while adopting a cautious approach amidst the ongoing uncertainties in the global economy and the interest rate environment.”

Outlook:

“We continue to face challenges from rising interest rates, inflation, and global economic uncertainties. These ongoing issues may have some impact on tenants’ businesses as well as on CLAR’s operating costs. The Manager will proactively manage these challenges in a prudent manner and is well-positioned to leverage on CLAR’s strong financial position to take advantage of any growth opportunities should they arise to deliver sustainable returns to Unitholders.”

Closing Thoughts

I’m sure you’ll agree with me that the blue-chip REIT’s latest set of results is a pretty strong one – from its financial performance (where growth is mostly contributed by newly acquired properties, along with contributions from properties following their redevelopment), to its portfolio occupancy profile (where its occupancy rate at 94.6% was a 10-year high, coupled with the fact that the REIT still managed to report improvements in rental reversions despite the economic headwinds.)

While the debt profile was a slight negative, but it’s one where all the REITs are faced with in light of the current high interest rate environment. Despite of that, I’m of the opinion that its aggregate leverage, at 36.3% as at 31 December 2022, continues to remain very healthy (and a good debt headroom available before the regulatory limit of 50.0% is reached.)

With that, I have come to the end of my review of CapitaLand Ascendas REIT’s latest set of results. I do hope you’ve found the contents above to be useful. However, take note that everything you’ve just read above is purely for educational purposes only, and do not constitute any buy or sell calls for the REIT’s units. You’re strongly encouraged to do your own due diligence before you make any investment decisions.

Have a wonderful weekend ahead!

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