3 Things To Like About Ascendas Real Estate Investment Trust’s FY17/18 Results
With a market capitalisation of close to S$8 billion, Ascendas Real Estate Investment Trust (SGX: A17U) is the largest REIT listed in Singapore. This is no mean feat, considering that Singapore is home to more than 40 REITs and property trusts.
Last month, the REIT released its earnings update for the fiscal year ended 31 March 2018 (FY17/18). There were some impressive numbers to note. Firstly, gross revenue climbed 3.8% to S$862.1 million. Net property income grew 3.0%, and most importantly for unitholders, distribution per unit (DPU) rose 1.6% to 15.99 Singapore cents.
However, beyond these headline numbers, there are, in fact, many other positives to like about the REIT’s results. In this article, I will highlight three more positive aspects of the trust’s financial year performance that could boost returns in the future.
Gearing ratio stable
The gearing ratio of a REIT is a comparison of the trust’s debt against its assets. A lower gearing ratio is desirable for REITs, as it means it has wriggle room to increase its debt load in the future to fund acquisitions.
As of 31 March 2018, Ascendas REIT had a gearing ratio of 34.4%. This is well below the 45% regulatory cap imposed by the Monetary Authority of Singapore. It also represents an improvement from 31 December 2017 when the trust had a gearing of 35.2%.
Ascendas REIT’s prudent management of its debt load has not gone unnoticed. Credit rating agency, Moody, has continued to issue Ascendas REIT a good credit rating of A3. This would allow the REIT to continue to negotiate good terms with its creditors in the future.
Positive property revaluation
A REIT’s property revaluation can sometimes go unnoticed by investors. This is because property revaluations has no direct impact on the REIT’s distribution per unit. However, positive revaluations of a REIT’s portfolio have a material impact on the REIT’s overall long-term performance.
For one, it can increase the asset value of the REIT, thereby providing more headroom for the trust to increase its debt load in the future. The REIT can also realise the gain when it decides to sell the properties that have appreciated.
Ascendas REIT’s comparable property portfolio had a gain of S$90 million or 0.9% from a year ago. This growth, albeit comparatively small, is testament to the REIT’s strong line-up of properties that has the propensity to appreciate. Over the long-term, the appreciation of Ascendas REIT’s property portfolio will go a long way in providing unitholders with growing returns.
Portfolio occupancy increases
Lastly, the trust’s portfolio occupancy has steadily increased over the year. Below is a chart showing the occupancy rates for the REIT:
Source: Ascendas REIT FY17/18 results presentation
As you can see, occupancy rates for both its Australia and Singapore portfolio increased progressively from March 2017 to March 2018. A higher occupancy, together with the reported 0.7% positive rental reversion for the year, will provide additional rental income for the year ahead.
The Foolish bottom line
Despite its size, Ascendas REIT continues to power its growth through prudent capital recycling and eye for quality investments. With the positive revaluations, higher occupancy rates and stable gearing ratio of the REIT, the future of Ascendas REIT certainly looks promising.