On 2 February 2023, CapitaLand Ascendas Real Estate Investment Trust (“CLAR”) have announced their full year result for FY2022. Despite the unfavorable environment for REITs with the high interest rates and looming recession, CLAR has posted a strong and stable financial performance this year, and have declared a distribution to be paid out in March 2023.
Similar to other REITs with strong financial positions, CLAR is currently trading at a premium to its book value. Assuming nothing significant happens, I am expecting dividend yield to be around 5.68% for the calendar year 2023. In view that long-term interest rates are showing signs of falling, this is favorable and may provide resilience against the share price falling significantly despite its premium.
Website: Financial Statements And Related Announcement::Full Yearly Results
CLAR is Singapore’s first and largest listed business space and industrial real estate investment trust. As one of Singapore’s REIT pioneers, CLAR has played a crucial role in the development of the Singapore REIT sector, providing an attractive platform for investment in business park and industrial properties in Singapore.
CLAR’s multi-asset portfolio is anchored by well-located quality 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 & supply chain management, biomedical sciences, financial services (back room office support), electronics, government and other manufacturing and services industries.
Investment properties stood at SGD16.4 billion as at 31 December 2022.
CLAR is listed on several indices. These include the FTSE Straits Times Index, the Morgan Stanley Capital International, Inc (“MSCI”) Index, the European Public Real Estate Association/National Association of Real Estate Investment Trusts (“EPRA/NAREIT”) Global Real Estate Index and Global Property Research (“GPR”) Asia 250. CLAR has an issuer rating of “A3” by Moody’s Investor Services.
CLAR is managed by CapitaLand Ascendas REIT Management Limited, a wholly owned subsidiary of Singapore-listed CapitaLand Investment Limited, a leading global real estate investment manager with a strong Asian foothold.
Key Metrics
Distribution Per Unit (“DPU”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | +3.5% | No Info |
DPU for the full FY2022 increased by 3.5% to SGD0.158 from SGD0.153 in the previous financial year. This was despite the increase in applicable number of units by 1.8% to 4,202 million from 4,129 million as at 31 December 2021. The higher DPU was mainly due to higher net property income and waiver of management performance fee, offset by higher finance costs. This metric is Favorable.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 94.6% | 94.5% |
Occupancy rate as at 31 December 2022 stands at 94.6% which is a slight improvement from 94.5% as at 30 September 2022. Although this was an improvement from prior quarter occupancy rate, it is below my expected healthy occupancy rate of 95% and CLAR have been unable to fully utilize their assets. This metric is thus Neutral.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 36.3% | 37.3% |
Gearing ratio stands at 36.3% as at 31 December 2022 as compared to 37.3% as at 30 September 2022. This to me is considered Favorable as it means there is sufficient headroom from the MAS limit of 50% to fund new acquisitions through debt in the short term before interest rates increase significantly in 2023. This provides opportunity for CLAR to improve their DPU.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 4.9x | 5.7x |
I have amended my analysis of the interest coverage to use the adjusted interest coverage that was provided by management. The reason is because it includes the amount reserved for distribution to Perpetual Securities holders. Although Perpetual Securities holders are a form of equity, there is a higher priority to pay them their interest due before it is distributed to the common shareholders. Thus we have to ensure there is sufficient interest coverage to satisfy their needs as well.
The interest coverage for the trailing 12 months stands at 4.9 times, a decrease from 5.7 times as at 30 September 2022. The decrease in coverage is not unexpected given that their average cost of debt have increased to 2.5% as at 31 December 2022.
This is Neutral in my opinion as the coverage ratio is slightly below my preferred coverage of 5.0 times. It is likely that the cost of debt will continue to increase as CLAR refinance their debts in the current interest rate climate. The Federal Reserve on 1 February 2023, the Federal Reserve has hiked interest rates to a range between 4.5% and 4.75%, and gave little indication it is nearing the end of this hiking cycle.
Website: Fed raises rates a quarter point, expects ‘ongoing’ increases
CLAR have provided the interest rate sensitivity analysis as below. Should the interest rate increase by another 1.0%, using FY2022 distribution as a base, distribution is expected to decrease by 2.0%. Together with other cost pressures, DPU may be negatively affected moving forward and investors should keep a keen eye out for the interest coverage.
| Change in Interest Rates | Decrease in Distributable Income (SGD’000) | Change as % of FY2022 Distribution |
|---|---|---|
| + 50 bps | -$6,500 | -1.0% |
| + 100 bps | -$13,000 | -2.0% |
| + 150 bps | -$19,400 | -2.9% |
| + 200 bps | -$25,900 | -3.9% |
| + 250 bps | -$32,450 | -4.9% |
| + 300 bps | -$38,900 | -5.9% |
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.7 years | 3.5 years |
Weighted average term to maturity of their debt stands at 3.7 years as at 31 December 2022. This is Favorable and it allows them sufficient time to refinance their debts as they fall due.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 1.17 | 1.09 |
The Price to Book (“P/B”) ratio currently stands at 1.17. This was computed using the net asset value per share of SGD2.37 as at 31 December 2022 and closing share price of SGD2.78 as at 17 February 2023. The P/B ratio is Neutral as although this is a well managed asset, investors will be paying a slight premium for the asset.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 2.85% | SGD 0.079 |
| 2022 | 5.58% | SGD 0.155 |
| 2021 | 3.35% | SGD 0.093 |
| 2020 | 5.94% | SGD 0.165 |
| 2019 | 5.79% | SGD 0.161 |
| 2018 | 5.68% | SGD 0.158 |
The dividend payout in March 2023 is slightly higher than the dividend paid out in the calendar year 2022. If extrapolate for the full financial year, the dividend is expected to have a total of SGD0.158. Based on the closing price of SGD2.78 on 17 February 2023, this translates to a dividend yield of 5.68%. For my benchmark, a general reasonable range for 2023Q1 would be around 5.5% to 6.5%. As the dividend yield is around 5.5%, it is Favorable.
Website: Reasonable Dividend Yield 2023Q1
Furthermore, it is worth noting that interest for long-term safe assets are on a downtrend. The March 2023 Singapore Savings Bond being issued with a 10-year average interest rate of 2.90%, which is lower than the previous few months. There is a chance with the continued decrease interest rates, the required dividend yield of investor required may not be as high as before. The current yield of CLAR may be considered stable from short-term shocks.
Website: SBMAR23 GX23030A Bond Details
Other metrics
Tenant profile
CLAR has a well diversified tenant profile of 1,720 tenants with the top 10 customers as at 31 December 2022 only account for about 16.6% of monthly portfolio gross revenue. Furthermore no single property accounts for more than 3.3% of CLAR’s monthly gross revenue. This is Favorable as CLAR will not be too reliant on any single tenant for income.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | +3.5% | Favorable |
| Occupancy | 94.6% | Neutral |
| Gearing Ratio | 36.3% | Favorable |
| Interest Coverage | 4.9x | Neutral |
| Debt Maturity Profile | 3.7 years | Favorable |
| Price to Book Ratio | 1.17 | Neutral |
| Overall | | Favorable |
Overall, the metrics indicate that it is favorable to invest in CLAR. With long-term interest rates continue to be on a downtrend, it might provide a stable outlook for all well-managed REITs.
There are still some market uncertainty and combined with the fact that it is already post dividend ex-date, the share price may face some downward pressure and opportunities for new investors to take a position. However, it is possible for the share price to recover should interest rates continue to decrease over the next few months.
Investors also will need to keep in mind that CLAR has a history of using equity funding for aggressive expansion, although they have not done so the last one year. In order to maximize this investment, unitholders may have to continuously subscribe to the excess offerings. This might not necessary fit the passive dividend investment strategy.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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