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Will CapitaLand Ascendas REIT lose its resilience after dividend cut?

By Gerald Wong, CFA • 23 Feb 2024 • 0 min read

CapitaLand Ascendas REIT announced a decline in dividends for the second half of 2023. We find out if the REIT can stay resilient amidst sector headwinds.

capitaland ascendas reit share price feb 2024

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What happened?

Many in the Beansprout community wanted to get an update on CapitaLand Ascendas REIT (SGX: A17U) after it reported its 2023 earnings. 

After all, we shared that CapitaLand Ascendas REIT was one of the most resilient REITs last year which saw share price gains. 

CapitaLand Ascendas REIT reported a distribution per unit of 7.441 cents for the second half of 2023 (2H 2023), a 6.1% decline compared to the previous year. 

This would bring the total distribution per unit to 15.16 cents for 2023, a 4.0% decline compared to the previous year. 

CapitaLand Ascendas REIT’s share price has taken a tumble, falling by 6% year to date to reach S$2.79 as of 23 February.

Let’s take a deeper look at the REIT’s latest results to find out what is driving the weakness in its share price. 

capitaland ascendas reit share price feb 2024

What you need to know about CapitaLand Ascendas REIT’s results

#1 – A mixed set of financial numbers

2023 saw a sharp rise in borrowing costs for most REITs, and CapitaLand Ascendas REIT did not escape unscathed.

The REIT reported a healthy 11.0% year on year increase in gross revenue to S$S$762 million for the second half of 2023.

Its net property income also rose 4.6% to S$514 million.

Unfortunately, CapitaLand Ascendas REIT saw a sharp 26.5% year on year jump in finance costs to S$136 million for the second half of 2023. 

As a result, distributable income slid 1.9% year on year to S$326.9 million.

The industrial REIT also saw its total issued unit base increase by 4.5% year on year to 4.4 billion units.

The increase in the number of units, along with higher operating and finance costs, caused distribution per unit to slide 6.1% year on year to 7.441 cents. 

capitaland ascendas reit stats
Source: CapitaLand Ascendas REIT

#2 – Lower portfolio occupancy rate but positive reversions

CapitaLand Ascendas REIT owns a total of 232 properties spread across Singapore, the US, Australia, Europe, and the UK with total assets under management of S$16.9 billion as of 31 December 2023.

It's portfolio occupancy fell slightly to 94.2% as of 31 December 2023 from 94.6% a year ago.

The portfolio also enjoyed a positive rental reversion of 13.4% for 2023, higher than the positive reversion of 8% registered a year ago.

The positive reversions point to fairly robust demand for CapitaLand Ascendas REIT ’s portfolio of properties.

#3 – Prudent debt management

The manager of the REIT also demonstrated prudent debt management in light of the high interest rate environment.

Aggregate leverage stood at 37.9%, well below the maximum threshold of 50% as mandated by the Monetary Authority of Singapore.

The REIT’s cost of debt, at 3.5%, was one percentage point higher than a year ago.

CapitaLand Ascendas REIT has nearly 80% of its debt pegged to fixed rates, helping to mitigate the negative impact of rising rates as it refinances its loans.

The REIT estimates that a 0.5 percentage point increase in interest rates will reduce 2023’s distribution by just 0.7%.

well-spread debt maturity profile
Source: CapitaLand Ascendas REIT

In addition, the industrial REIT also maintains a well-spread-out debt maturity profile as can be seen above.

The longest maturity is in 2032 and the REIT has diversified financial resources to refinance these loans as they come due.

#4 – Constantly improving the portfolio

capitaland ascendas reit fy2023 investment highlights
Source: CapitaLand Ascendas REIT

Yet another strong aspect of CapitaLand Ascendas REIT is the manager’s commitment to constantly improve the portfolio through acquisitions, divestments, redevelopments, and asset enhancement initiatives (AEIs).

The slide above showcases the acquisitions and developments conducted by the REIT in 2023 which amounted to S$885.3 million across three countries.

It also completed an AEI and a convert-to-suit project worth S$71.9 million.

Meanwhile, CapitaLand Ascendas REIT was also active in divestments with the sale of KA Place in Singapore worth S$35.4 million.

In mid-December last year, the REIT announced another three divestments in Australia for a total sum of A$73 million.

capitaland ascendas reit ongoing projects
Source: CapitaLand Ascendas REIT

CapitaLand Ascendas REIT  has a list of ongoing projects to improve the portfolio, with three redevelopments worth S$543.6 million slated for completion from the second quarter of 2025 to the first quarter of 2026 (see above).

Two AEIs will also be conducted on Singapore properties worth S$7.4 million.

This active portfolio management approach will stand the industrial REIT in good stead to continue growing its revenue and distributable income for 2024 and beyond.

What would Beansprout do?

There are reasons to like and dislike CapitaLand Ascendas REIT.

On the positive side, CapitaLand Ascendas REIT's rental reversions remain healthy. The manager is also actively enhacing its portfolio through acquisitions, divestments, redevelopments, and asset enhancement initiatives (AEIs).

CapitaLand Ascendas REIT a healthy balance sheet with a gearing of 37.9% as at December 2023. 

However, CapitaLand Ascendas REIT's portfolio occupancy rate has fallen slightly, and a sharp increase in financing costs has impacted its dividends to unitholders. 

CapitaLand is also not cheap from a valuation perspective, as it has been perceived to be one of the more resilient Singapore REITs. 

The REIT is trading at a price-to-book valuation of 1.25x, slightly higher than its historical average of 1.1x.

Based on CapitaLand Ascendas REIT’s share price of S$2.79 as of 23 February 2024, the REIT offers a dividend yield of 5.4%.

This is slightly lower than Mapletree Industrial Trust’s dividend yield of 5.6% and  Mapletree Logistics Trust’s dividend yield of 6.0%. 

While investors looking for stability may like CapitaLand Ascendas REIT, we believe there may be other REITs which offer a better risk-reward profile currently. 

Check out Beansprout’s REIT tool to compare CapitaLand Ascendas REIT with others REITs, and choose the best REIT for your portfolio.

To find out the dividend payment dates and calculate the amount of dividends you will receive, check out our CapitaLand Ascendas REIT stock page.

Join the Beansprout Telegram group or Facebook group to get the latest updates on Singapore REITs, stocks, bonds and ETFs.

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This article was first published on 23 February 2024 .

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