On 2 May 2023, CapitaLand Ascendas Real Estate Investment Trust (“CLAR”) have announced their first quarter business update for FY2023. The fundamentals of CLAR remained relatively stable, though most of the metrics saw their indicators worsen slightly this quarter.
There will definitely be dilution with short-term impact to the DPU and share price as CLAR look to complete the private placement in 2023Q2. Thus while currently I am expecting dividend yield to be around 5.64% for the calendar year 2023, there may be decrease when taking into consideration the larger unit base and also impact of interest rates.
Website: General Announcement::Business Updates For The First Quarter Ended 31 March 2023
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 | No Info | +3.5% |
Based on the announcement on 2 May 2023, DPU was not included in the business update for the first quarter of 2023.
As at 31 December 2022, the metric was Favorable as there was a slight increase in DPU.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 94.4% | 94.6% |
Occupancy rate as at 31 March 2023 stands at 94.4% which is a slight decrease from 94.6% as at 31 December 2022. The decrease was partly due to US transitionary movement in Raleigh. Although this may be temporary, the occupancy of CLAR is currently still 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 | 38.2% | 36.3% |
Gearing ratio stands at 38.2% as at 31 March 2023. This to me is considered Neutral as it has increased significantly closer to the MAS limit of 50%.
Worth noting that taking on debt to purchase assets at lower prices with opportunities to refinance in the future provides opportunity for CLAR to improve their DPU in the longer term. In the short term however, investors need to take note in case of fundamental changes that may cause CLAR to breach any covenants.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 4.5x | 4.9x |
Analysis of the interest coverage uses 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 4.5 times, a decrease from 4.9 times as at 31 December 2022. The decrease in coverage is not unexpected given that their average cost of debt have increased to 3.3% as at 31 March 2023 and CLAR gearing have also increased.
This is Unfavorable in my opinion as the coverage ratio is 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 3 May 2023 has hiked the interest rates to a range between 5.00% and 5.25%, the highest level in 15 years and are likely to keep it at these levels over the next few years. While the interest rates may not be increased further, maintaining the rates at these levels over the next few years may cause MIT to take on new loans at higher interest rates.
Website: US Fed raises interest rates again, signals potential pause in tightening cycle
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 2.2%. 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 | -$7,400 | -1.1% |
| + 100 bps | -$14,800 | -2.2% |
| + 150 bps | -$22,200 | -3.3% |
| + 200 bps | -$29,500 | -4.4% |
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.2 years | 3.7 years |
Weighted average term to maturity of their debt stands at 3.2 years as at 31 March 2023. This is Favorable and it allows them sufficient time to refinance their debts as they fall due. Worth noting that the debt maturity profile has decreased significantly this quarter which means the newer debts are at shorter rates.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 1.18 | 1.17 |
Based on the announcement on 2 May 2023, net asset value was not included in the business update for the first quarter of 2023.
The Price to Book (“P/B”) ratio currently stands at 1.18. This was computed using the net asset value per share of SGD2.37 as at 31 December 2022 and closing share price of SGD2.80 as at 19 May 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 | 5.02% | SGD 0.141 |
| 2022 | 5.54% | SGD 0.155 |
| 2021 | 3.32% | SGD 0.093 |
| 2020 | 5.89% | SGD 0.165 |
| 2019 | 5.75% | SGD 0.161 |
| 2018 | 5.64% | SGD 0.158 |
Due to the new units issued for the private placement, there is an advance distribution that will be paid on 26 June 2023. The semi-annual distribution will continue thereafter.
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 SGD2.80 on 19 May 2023, this translates to a dividend yield of 5.64%. For my benchmark, a general reasonable range for 2023Q2 would be around 5.5% to 6.5%. As the dividend yield is around 5.5%, it is Favorable.
Website: Reasonable Dividend Yield 2023Q2
It is worth noting that interest for long-term safe assets have stabilized and is on a downtrend. The June 2023 Singapore Savings Bond being issued with a 10-year average interest rate of 2.81%. There is a chance for interest rates may not increase significantly moving forward, and the required dividend yield of investor may be lower than current.
Website: SBJUN23 GX23060E 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 March 2023 only account for about 16.2% of monthly portfolio gross revenue. Furthermore no single property accounts for more than 3.2% 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 | No Info | Favorable |
| Occupancy | 94.4% | Neutral |
| Gearing Ratio | 38.2% | Neutral |
| Interest Coverage | 4.5x | Unfavorable |
| Debt Maturity Profile | 3.2 years | Favorable |
| Price to Book Ratio | 1.18 | Neutral |
| Overall | | Neutral |
Overall, the metrics indicate that it is neutral to invest in CLAR. There is definitely a lot of minor changes to CLAR this quarter, which shifted the metrics to be less favorable than the previous quarter.
Investors also will need to keep in mind that CLAR has a history of using equity funding for aggressive expansion, and thus the upcoming private placement is not unexpected. 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.
There are still some market uncertainty and combined with the fact that there is an upcoming private placement, the share price may face some downward pressure and provide opportunities for new investors to take a position.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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Website: CapitaLand Ascendas Real Estate Investment Trust (SGX: A17U): 2022 Full Year Result
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