On 1 February 2024, CapitaLand Ascendas Real Estate Investment Trust (“CLAR”) have announced their FY2023 full year result. Overall the DPU decrease is expected. It may however continue to decrease for 2024 given the interest rates are still high and will take time to refinance. Therefore dividend is expected to decrease slightly as the payout in March 2024 is already looking to be lower than the payout in 2023.
Take note there was a decrease in valuations by approximately 3% of the investment property value as at 31 December 2023. Not unexpected given the current environment and still seems relatively well managed compared to the peers in the industry.
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 (“REIT”). It was listed on the Singapore Exchange Securities Trading Limited (SGX-ST) in November 2002.
It has since grown to be a global REIT anchored in Singapore, with a strong focus on tech and logistics properties in developed markets. It owns properties across three key segments, namely, 1) Business Space and Life Sciences, 2) Logistics, and 3) Industrial and Data Centres in the developed markets of Singapore, Australia, the United States and the United Kingdom/Europe.
CapitaLand Ascendas REIT 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. CapitaLand Ascendas REIT has an issuer rating of ‘A3’ by Moody’s Investors 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 | -4.0% | No Info |
DPU decreased by 4.0% to SGD0.152 per share for FY2023 from SGD0.158 per share in the previous financial year. Net property income continued to increase, and the major reason for the decrease in DPU can be attributed to the increase in net finance costs. This is not unexpected given the high interest rate environment. The metric is Unfavorable.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 94.2% | 94.5% |
Occupancy rate as at 31 December 2023 decreased slightly to 94.2%. 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 | 37.9% | 37.2% |
Gearing ratio has increased to 37.9% as at 31 December 2023. This to me is considered Favorable as it is still a distance away from the MAS limit of 50%.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 3.7x | 3.8x |
Analysis of the interest coverage uses the adjusted interest coverage that was provided by management which 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 3.7 times. This is Favorable in my opinion as the coverage ratio is above my preferred coverage of 3.0 times in the current high interest rate environment. It is however likely to continue to decrease as the Federal Reserve on 31 January 2024 have continued to hold interest rates steady at a 23-year high, after increasing the interest rates to a range between 5.25% and 5.50% on 26 July 2023. The bank was looking for “greater confidence” that the inflation would continue to fall before considering to cut interest rates. Therefore any refinancing done by CLAR will be at higher interest rates.
Website: Fed holds interest rates at a 23-year high
CLAR have provided the interest rate sensitivity analysis as below. Should the interest rate increase by another 1.0%, using FY2023 distribution as a base, distribution is expected to decrease by 2.1%. 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 FY2023 Distribution |
|---|---|---|
| + 50 bps | -$6,800 | -1.0% |
| + 100 bps | -$13,700 | -2.1% |
| + 150 bps | -$20,500 | -3.1% |
| + 200 bps | -$27,400 | -4.2% |
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.4 years | 3.3 years |
Weighted average term to maturity of their debt increased to 3.4 years as at 31 December 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 | 1.22 |
The Price to Book (“P/B”) ratio currently stands at 1.22. This was computed using the net asset value per share of SGD2.26 as at 31 December 2023 and closing share price of SGD2.76 as at 9 February 2024. 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 |
|---|---|---|
| 2024 | 2.70% | SGD 0.074 |
| 2023 | 5.67% | SGD 0.156 |
| 2022 | 5.62% | SGD 0.155 |
| 2021 | 3.37% | SGD 0.093 |
| 2020 | 5.98% | SGD 0.165 |
| 2019 | 5.83% | SGD 0.161 |
The dividend payout for the first half of 2024 amounted to SGD0.074 per share. If extrapolated to the full calendar year, expected dividend payout would be SGD0.148 per share. Based on the closing price of SGD2.76 on 9 February 2024, this translates to a dividend yield of 5.36%. For my benchmark, a general reasonable range would be around 5.25% to 6.25%. For a REIT that is considered a premium and as the dividend yield is within range, it is Favorable.
Website: Reasonable Dividend Yield 2024Q1
Other metrics
Tenant profile
CLAR has a well-diversified tenant profile of 1,790 tenants with the top 10 customers as at 31 December 2023 only account for about 16.9% 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 | -4.0% | Unfavorable |
| Occupancy | 94.2% | Neutral |
| Gearing Ratio | 37.9% | Favorable |
| Interest Coverage | 3.7x | Favorable |
| Debt Maturity Profile | 3.4 years | Favorable |
| Price to Book Ratio | 1.22 | Neutral |
| Overall | | Neutral |
The overall metrics indicate that the fundamentals remain relatively unchanged, and it is neutral to invest in CLAR. Moving forward there are opportunities for DPU to increase should interest rates decrease, which will help CLAR to move into the favorable territory. Take note however that gearing ratio have increased slightly and may continue to increase and become unfavorable.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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