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THE SINGAPOREAN INVESTOR

Author: ljunyuan   |   Latest post: Fri, 16 Sep 2022, 11:26 AM

 

Ascendas REIT's 1H FY2022 Financial Results - My Review

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Ascendas REIT's 1H FY2022 Financial Results - My Review

Ascendas REIT (SGX:A17U), Singapore’s first and largest business space and industrial REIT where its portfolio comprises a total of 221 business space and life science, logistics, as well as industrial and data centre properties in Singapore, Australia, the United States, and also in the United Kingdom/Europe, have made available its financial results for the first half of the financial year ended 30 June 2022 (i.e. 1H FY2022) after market hours yesterday (02 August.)

As a unitholder of the REIT, I have gone through the documents posted and in this post, you’ll find my review about its financial results, portfolio occupancy and debt profile, along with its distribution payout declared for its unitholders for the period under review.

Let’s begin:

Financial Results (1H FY2021 vs. 1H FY2022)

As the REIT did not post any financial figures for the first quarter of the financial year (as it was just a business update), in this post, you will only find a review of its financial results on a year-on-year (y-o-y) basis (i.e. 1H FY2021 vs. 1H FY2022), and they are as follows:

1H FY20211H FY2022Variance (%)
Gross Revenue
(S$’mil)
$586.0m$666.5m+13.7%
Property Operating
Expenses (S$’mil)
$140.4m$189.6m+35.0%
Net Property
Income (S$’mil)
$445.6m$476.9m+7.0%
Distributable Income
to Unitholders
(S$’mil)
$311.0m$330.7m+6.3%

The double-digit percentage climb in the REIT’s gross revenue compared to last year was mainly attributed to (i) full 6-months contribution from the 11 data centres in Europe (acquired in Mar 2021), acquisition of the remaining 75% interest in AF5PL (Ascendas Fusion 5 Pte Ltd) that holds Galaxis, Singapore (in Jun 2021), acquisition of 11 logistics properties in Kansas City, USA (in November 2021), along with acquisition of 7 logistics properties in Chicago, USA (in June 2022); (ii) completion of Grab Headquarters, Singapore (in Jul 2021), Ubix, Singapore (in Jan 2022), 500 Green Road, Brisbane, Australia, and 7 Kiora Crescent, Australia (in Feb 2022). This was partially offset by a loss of income arising from the divestment of 1314 Femtree Gully Road, Melbourne Australia (in June 2021), 82 Noosa Street and 62 Stradbroke Street, Brisbane, Australia (in Jul 2021.)

However, net property income increased by just 7.0% due to higher net utilities expenses incurred by its Singapore properties.

Finally, the 35.0% jump in its property operating expenses was due to expenses incurred by the newly acquired properties in FY2021, and during the current financial period, along with higher utilities cost incurred for investment properties in Singapore.

Portfolio Occupancy Profile (Q1 FY2022 vs. Q2 FY2022)

Moving on, let us take a look at the REIT’s portfolio occupancy profile – where I will be taking the statistics reported for the current quarter under review (i.e. Q2 FY2022 ended 30 June 2022), and compare them against the statistics reported in the previous quarter 3 months ago (i.e. Q1 FY2022 ended 31 March 2022) to find out whether it has continued to remain resilient:

Q1 FY2022Q2 FY2022Difference (in
Percentage Points – pp)
Portfolio
Occupancy (%)
92.6%94.0%+1.4pp
Rental
Reversion (%)
+4.6%+9.4%+4.8pp

My Observations: Despite the economic headwinds, I’m encouraged to note that the industrial REIT’s occupancy profile have further strengthened compared last quarter – particularly its rental reversion, which grew by 4.8 percentage points (pp) to +9.4% (and in my opinion, this will positively contribute to the REIT’s financial performance in the quarters ahead.)

The 1.4pp increase in its portfolio occupancy can be attributed to improvements in the occupancy rate in its properties in all geographical locations (in Singapore, Australia, United States, as well as in United Kingdom/Europe.)

Finally, lease expiries are also well-spread out – with 10.2% of the leases expiring in the 2nd half of the current financial year 2022, 21.4% of the leases expiring in FY2023, 16.4% of the leases expiring in FY2024, and the remaining 52.0% of the leases only expiring in FY2025 and beyond.

Debt Profile (Q1 FY2022 vs. Q2 FY2022)

When it comes to reviewing a REIT’s debt profile, I will also take the statistics reported for the current quarter under review (i.e. Q2 FY2022 ended 30 June 2022) and compare them against the statistics reported in the previous quarter 3 months ago (i.e. Q1 FY2022 ended 31 March 2022) to find out whether it has continued to remain healthy:

Q1 FY2022Q2 FY2022
Aggregate Leverage
(%)
36.8%36.7%
Interest Coverage
Ratio (times)
5.7x6.1x
Average Term to
Debt Maturity (years)
3.5 years3.9 years
Average Cost of
Debt (%)
2.1%2.1%

My Observations: Compared to the previous quarter, the REIT’s debt profile improved slightly (which is good to note) – its aggregate leverage, at 36.7%, remains very healthy, and ample of debt headroom for the REIT to embark on further yield-accretive acquisitions before the regulatory limit of 50.0% is reached.

For those of you who are worried about the impact of interest rate hikes on distributable income, you’d be comforted to know that the REIT has hedged 80.0% of its borrowings at fixed rates – which is very high in my opinion, and this provides a good level of “protection” against the negative impacts arising from interest rate hikes.

As far as the REIT’s debt maturity is concerned, they are also well-spread out – with 7.8% (or S$490m) of its borrowings maturing in the second half of FY2022, 10.8% (or S$684m) of its borrowings maturing in FY2023, 14.1% (or S$892m) maturing in FY2024, and 67.3% (or S$4,243m) of its borrowings only expiring in FY2025 and beyond.

Distribution Payout to Unitholders (1H FY2021 vs. 1H FY2022)

The management of Ascendas REIT declares a distribution payout to unitholders on a half-yearly basis – once when it releases its results for the first half of the financial year (which is this time round), and once when it releases its results for the second half of the financial year (which usually is some time between mid- to end-January.)

For the current period under review (i.e. 1H FY2022), a distribution payout of 7.873 cents/unit was announced – a 2.8% increase from a payout of 7.66 cents/unit declared in the same time period last year (i.e. 1H FY2021) – in case you’re wondering why the percentage increase in its distribution payout to unitholders was much lower compared to the percentage increase in its distributable income to unitholders (at 6.3%), this was due to an increase in unit base from the issuance of Consideration Units and acquisition fee in units in relation to the acquisition of the remaining 75% interest in AF5PL on 30 June 2021, as well as divestment fee units for the divestment of 1 Science Park Drive in Dec 2021.

If you are a unitholder of the REIT, here are some important dates regarding its payout to take note:

Ex-Date: 10 Aug 2022
Record Date: 11 Aug 2022
Payout Date: 05 Sep 2022

Closing Thoughts

As a unitholder of the blue-chip industrial REIT, I am satisfied with its latest “report card” – the double-digit percentage y-o-y growth in its gross revenue contributed by newly acquired properties, as well as contributions from the newly developed properties; portfolio occupancy remains very strong, with occupancy rates of properties in all the 4 geographic locations at above 90.0% (Singapore at 91.9%, Australia at 96.6%, United States at 95.3%, and United Kingdom/Europe at 97.7% as at 30 June 2022); debt profile remains very healthy, with its current aggregate leverage (at 36.7%) a good distance away from the regulatory limit of 50.0%, and 80.0% of its borrowings are hedged at fixed rates (hence risks relating to interest rate hikes on the REIT’s distributable income is well-mitigated.)

With that, I have come to the end of my review of Ascendas REIT’s results for the first half of FY2022 ended 30 June 2022. As always, do take note that all the opinions above are purely mine which I’m sharing for educational purposes only. They do not represent any buy or sell calls for the REIT’s units. You’re strongly encouraged to do your own due diligence before making any investment decisions.

Related Documents

Disclaimer: At the time of writing, I am a unitholder of Ascendas REIT.

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