On 31 July 2023, CapitaLand Ascendas Real Estate Investment Trust (“CLAR”) have announced their first half year result for FY2023. Being one of the large REITs, CLAR is able to show stability and the fundamentals of CLAR remained relatively well positioned. There has been a significant increase in finance expense which caused DPU to drop, though it is not unexpected as interest rates are likely to continue increasing for the rest of 2023. Investors need to take note that the DPU trend is likely to continue for the rest of the year.
Website: Financial Statements And Related Announcement::Half 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.
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 | -2.0% | No Info |
DPU for the first half of FY2023 decreased by 2.0% to SGD0.077 from SGD0.079 in the previous financial year. The main reason for the decrease was due to the significant increase in finance costs by 50.4%, arising from higher average debt balances and higher weighted average cost of borrowings for the six months period ended 30 June 2023 of 3.3%. This metric is Unfavorable.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 94.4% | 94.4% |
Occupancy rate as at 30 June 2023 remains unchanged at 94.4%. 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 | 36.7% | 38.2% |
Gearing ratio stands at 36.7% as at 30 June 2023. This to me is considered Favorable as it has decreased significantly and provide more buffer from the MAS limit of 50%.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 4.1x | 4.5x |
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 4.1 times, a decrease from 4.5 times as at 31 March 2023. 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 26 July 2023 has once again hiked the interest rates by a quarter percentage point to a range between 5.00% and 5.25%, the highest level in 22 years and are likely to keep it at these levels over the next few years.
Website: Fed approves hike that takes interest rates to highest level in more than 22 years
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 1.8%. 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 | -$6,000 | -0.9% |
| + 100 bps | -$11,900 | -1.8% |
| + 150 bps | -$17,900 | -2.7% |
| + 200 bps | -$23,800 | -3.6% |
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.3 years | 3.2 years |
Weighted average term to maturity of their debt stands at 3.3 years as at 30 June 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 | 1.17 | 1.18 |
The Price to Book (“P/B”) ratio currently stands at 1.17. This was computed using the net asset value per share of SGD2.32 as at 30 June 2023 and closing share price of SGD2.71 as at 18 August 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 | 5.77% | SGD 0.156 |
| 2022 | 5.72% | SGD 0.155 |
| 2021 | 3.43% | SGD 0.093 |
| 2020 | 6.09% | SGD 0.165 |
| 2019 | 5.94% | SGD 0.161 |
| 2018 | 5.83% | SGD 0.158 |
The total dividend payout for the calendar year 2023 amounted to SGD0.156. Based on the closing price of SGD2.71 on 18 August 2023, this translates to a dividend yield of 5.77%. For my benchmark, a general reasonable range for 2023Q2 would be around 5.5% to 6.5%. As the dividend yield is within range, it is Favorable.
Website: Reasonable Dividend Yield 2023Q3
It is worth noting that interest for long-term safe assets have stabilized and is on a downtrend. The September 2023 Singapore Savings Bond being issued with a 10-year average interest rate of 3.06%. 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: SBSEP23 GX23090F Bond Details
Other metrics
Tenant profile
CLAR has a well diversified tenant profile of 1,750 tenants with the top 10 customers as at 30 June 2023 only account for about 16.0% 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 | -2.0% | Unfavorable |
| Occupancy | 94.4% | Neutral |
| Gearing Ratio | 36.7% | Neutral |
| Interest Coverage | 4.1x | Unfavorable |
| Debt Maturity Profile | 3.3 years | Favorable |
| Price to Book Ratio | 1.17 | Neutral |
| Overall | | Neutral |
The overall metrics remain unchanged and it is neutral to invest in CLAR. There is a need to keep in mind the significant increase in borrowing costs. While it is not unexpected, DPU will continue to be affected for the next few quarters and likely share price as well.
CLAR have done one round of equity funding recently. Investors also will need to keep in mind that CLAR has a history of using equity funding for aggressive expansion. With the current high interest rates, it will lower valuations of properties in the market and will not be unexpected for CLAR to continue to raise funds over the next few quarters to make further acquisitions. 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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