On 22 April 2024, CapitaLand Ascendas Real Estate Investment Trust (“CLAR”) have announced their 2024 first quarter business update. There is no DPU update in this announcement. However, worth noting that gearing ratio have increased slightly, whereas occupancy and interest coverage both have decreased. It is likely for DPU from operations have decreased this quarter as well given the above factors.
The current market expectations is for interest rates to remain high for longer periods of time given the persistent inflation. This resulted in the share price to decrease significantly from the previous article, not just for CLAR but for other REITs as well. While this may provide an excellent buying opportunity, investors will need to take note that the time required for recovery remains uncertain.
Website: General Announcement::Business Updates For The First Quarter Ended 31 March 2024
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 | No Info | -4.0% |
Based on the announcement on 22 April 2024, DPU was not included in the business update for the first quarter of 2024.
As of 31 December 2023, the metric was Unfavorable as there was a decrease in DPU mainly arising from higher finance costs.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 93.3% | 94.2% |
Occupancy rate as of 31 March 2024 decreased to 93.3%. The occupancy of CLAR has worsened and below my expected healthy occupancy rate of 95%. The Singapore occupancy rate remained stable while overseas properties recorded a decline, most notably from the United Kingdom/Europe region where Welwyn Garden City is pending redevelopment plans. This metric is thus Neutral.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 38.3% | 37.9% |
Gearing ratio has increased to 38.3% as of 31 March 2024. This to me has shifted to the Neutral territory.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 3.6x | 3.7x |
The adjusted interest coverage for the trailing 12 months stands at 3.6 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. However, it is likely to continue to decrease as the inflation data in April 2024 continues to suggest high inflation. This gives the Federal Reserve less incentive to lower interest rate after increasing the interest rates to a range between 5.25% and 5.50% on 26 July 2023.
Website: Wall Street pushes out rate-cut expectations, sees risk they don’t start until March 2025
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 1.7%. 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 | -$5,700 | -0.9% |
| + 100 bps | -$11,400 | -1.7% |
| + 150 bps | -$17,200 | -2.6% |
| + 200 bps | -$22,900 | -3.5% |
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.4 years | 3.4 years |
Weighted average term to maturity of their debt remained unchanged at 3.4 years as of 31 March 2024. 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 | 1.13 | 1.22 |
Based on the announcement on 22 April 2024, net asset value (“NAV”) was not included in the business update for the first quarter of 2024.
The Price to Book (“P/B”) ratio currently stands at 1.13. This was computed using the net asset value per share of SGD2.26 as of 31 December 2023 and closing share price of SGD2.55 as of 22 April 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 | 2.92% | SGD 0.074 |
| 2023 | 6.13% | SGD 0.156 |
| 2022 | 6.08% | SGD 0.155 |
| 2021 | 3.65% | SGD 0.093 |
| 2020 | 6.47% | SGD 0.165 |
| 2019 | 6.31% | 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 SGD2.55 on 22 April 2024, this translates to a dividend yield of 5.80%. For my benchmark, a general reasonable range would be around 5.50% to 6.50%. For a REIT that is considered a premium and as the dividend yield is within range, it is Favorable.
Website: Reasonable Dividend Yield 2024Q2
Other metrics
Tenant profile
CLAR has a well-diversified tenant profile of 1,790 tenants with the top 10 customers as of 31 March 2024 only account for about 16.7% of monthly portfolio gross revenue. Furthermore no single customer 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 | Unfavorable |
| Occupancy | 93.3% | Neutral |
| Gearing Ratio | 38.3% | Neutral |
| Interest Coverage | 3.6x | Favorable |
| Debt Maturity Profile | 3.4 years | Favorable |
| Price to Book Ratio | 1.13 | Neutral |
| Overall | | Neutral |
The overall metrics indicate that the fundamentals remain relatively unchanged for this quarter, and it is neutral to invest in CLAR. With the share price trading at lows, it may present opportunities for investors to add for long-term recovery. Do take note that uncertainty around interest rates have increased in April 2024 which may cause the fundamentals to worsen.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
Previous Post
Website: CapitaLand Ascendas Real Estate Investment Trust (SGX: A17U): 2023 Full Year Result
