On 27 October 2023, CapitaLand Ascendas Real Estate Investment Trust (“CLAR”) have announced their FY2023 third quarter business update. Similar to prior quarters, as a business update with only semi-annual distributions, there were no disclosures about DPU. Although with the falling interest coverage it is likely to have fallen due to incurring higher interest expense. Whilst this is nothing new, it is something that investors have to take note off as interest rates look poised to increase. Excluding this, CLAR has continued to show stability in the other areas fundamentally.
Website: General Announcement::Business Updates For The Third Quarter Ended 30 September 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.
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 | -2.0% |
Based on the announcement on 27 October 2023, DPU was not included in the business update for the third quarter of 2023.
As at 30 June 2023, the metric was Unfavorable as there was a decrease in DPU mainly arising from higher finance costs.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 94.5% | 94.4% |
Occupancy rate as at 30 September 2023 remains relatively unchanged at 94.5%. 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 | 37.2% | 36.7% |
Gearing ratio stands at 37.2% as at 30 September 2023. This to me is considered Favorable as it is still a distance away from the MAS limit of 50%. Keep in mind however that it has increased this quarter.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 3.8x | 4.1x |
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 3.8 times, a decrease from 4.1 times as at 30 June 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 7 November 2023 have indicated that interest rates need to stay high for a longer period of time and higher interest rates may be needed. This was after having increased the interest rates to a range between 5.25% and 5.50% on 26 July 2023, the highest level in 22 years. There is a possibility that long-term interest rates may see an increase over the next few months.
Website: US Fed official expects further rate hike needed
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 1.9%. 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 | -$6,300 | -1.0% |
| + 100 bps | -$12,600 | -1.9% |
| + 150 bps | -$19,000 | -2.9% |
| + 200 bps | -$25,300 | -3.8% |
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.3 years | 3.3 years |
Weighted average term to maturity of their debt remains unchanged at 3.3 years as at 30 September 2023. 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 | 1.22 | 1.17 |
Based on the announcement on 27 October 2023, net asset value (“NAV”) was not included in the business update for the third quarter of 2023.
The Price to Book (“P/B”) ratio currently stands at 1.22. This was computed using the net asset value per share of SGD2.32 as at 30 June 2023 and closing share price of SGD2.82 as at 21 November 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 | 5.55% | SGD 0.156 |
| 2022 | 5.50% | SGD 0.155 |
| 2021 | 3.30% | SGD 0.093 |
| 2020 | 5.85% | SGD 0.165 |
| 2019 | 5.71% | SGD 0.161 |
| 2018 | 5.60% | SGD 0.158 |
As the year comes to an end, the total dividend payout for the calendar year 2023 amounted to SGD0.156. Based on the closing price of SGD2.82 on 21 November 2023, this translates to a dividend yield of 5.55%. For my benchmark, a general reasonable range for 2023Q4 would be around 6.0% to 7.0%. As the dividend yield is within range, it is Unfavorable.
Website: Reasonable Dividend Yield 2023Q4
If using dividend yield of 6.0% as a benchmark, based on the dividend of SGD0.156 there is potential for CLAR to see its share price drop by another 7.8% to SGD2.60.
| Yield | Share Price | Downside |
|---|---|---|
| Current (5.55%) | 2.82 | – |
| 6.00% | 2.60 | -7.8% |
| 7.00% | 2.23 | -21.0% |
| 8.00% | 1.95 | -30.9% |
| 9.00% | 1.73 | -38.5% |
The dividend yield is still considered as Neutral.
Other metrics
Tenant profile
CLAR has a well diversified tenant profile of 1,770 tenants with the top 10 customers as at 30 September 2023 only account for about 16.5% of monthly portfolio gross revenue. Furthermore no single property accounts for more than 3.1% 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 | Unfavorable |
| Occupancy | 94.5% | Neutral |
| Gearing Ratio | 37.2% | Favorable |
| Interest Coverage | 3.8x | Unfavorable |
| Debt Maturity Profile | 3.3 years | Favorable |
| Price to Book Ratio | 1.22 | Neutral |
| Overall | | Neutral |
With this business update, the overall metrics indicate that the fundamentals remain relatively unchanged and it is neutral to invest in CLAR. Although it is noted that interest coverage have decreased and therefore likely for DPU to have fallen as well. It is something that is similar across all REITs and therefore it comes down to which REIT manages it better.
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): 2023 Half Year Result
