Recent news
Ascendas(SGX: A17U) announced its intention to continue the unit buy-back program from last year until 2023. The renewal program is subject to the final approval of the annual general meeting on Apr 28, 2022.
Ascendas limits the number of buy-back units to 3% maximum and carries out the activities through the market and off-market repurchases. The former goes through the stock exchange while the latter goes through all non-market-repurchase channels.
The repurchase price is not more than 105% of the average closing price(ACP). The ACP is an average price determined by the last 5 trading days when the Ascendas manager makes a buy-back offer. The Ascendas management is confident the program will increase the return on equity for unitholders.
About Ascendas REIT
“To deliver predictable distributions and achieve long-term capital stability for unitholders.” is Ascendas’s mission statement. Listed on the Singapore Exchange in 2002, Ascendas(A17U) is a business space and industrial real estate investment trust investing in property-related assets across the United States, United Kingdom, Europe, and Singapore, the group’s most significant portfolio investments. Ascendas’s current market cap is S$12,216 million.
The diverse portfolio comprises business and science park properties, integrated development, high-specifications, light industrial buildings, amenities, retail properties, logistics, distribution centers, data, and analysis centers.
By December 31, 2021, the REIT has a portfolio of 96 properties in Singapore, 34 in Australia, 49 in the United Kingdom/Europe, and 41 in the United States, with a combined gross floor area 4,997,442 squared meters.
A member of the CapitaLand Investment Limited, Ascendas real estate investment trust is a member component of major worldwide indexes like the FTSE/Straits Times Index, Morgan Stanley Capital International Index, the European Public Real Estate Association/National Association of Real Estate Investment Trusts Global Estate Index, and Global Property Research Asia 250. The REIT has a solid rating of A3 by Moody’s Investor Services.
18% owned by the CapitaLand, Ascendas REIT has its properties under the management of the Ascendas Funds Management (S) Limited – a wholly-owned subsidiary of the CapitaLand.
Share Price, Target Price, Dividends, and Dividend Yield
Current Share Price(Stock Quotes)
The graph information comes from SGinvestors.io on Apr 11, 2022. The current dividend is S$0.10 per unit, and the dividend yield is 3.50%.
Target Price
The graph information comes from SGinvestors.io on Apr 11, 2022.
What do Analysts Say?
Operating performance
2021 is a happy year for Ascendas. Compared with 2020, the revenue has increased by 16.90% and net property income by 18.60%. These increases are due to gains from new acquisitions made across Australia, Europe, and Singapore in 2020 and 2021 and property tax rebates from the Singapore Government for the last fiscal year.
Besides, Ascendas disposed of 2 in Singapore and 2 in Australia, contributed S$2.3994 million in profits and remeasured the investment gains: S$1.368 million of the remaining 75% equity interests acquired: Ascendas Fusion 5Pte Ltd, to the group.
In 2022, 11 industrial properties completed by 2021 end in Kansas City, USA, will be fully operational in early 2022. An asset enhancement initiative project(completed in the first quarter of next year) for Hansapoint, Singapore, will be operating from the second quarter. By early 2022, the REIT will have completed the redevelopment of UBIX, Singapore. The group expects the new property additions will increase revenue and net property income for unitholders in 2022.
The management has increased the distributions by 3.90% to 15.258 cents per unit. Ascendas’s property worth is up 3.30%, and it has increased the property portfolio value by 18.90%.
Ascendas has increased distributions by 3.90% to 15.258 cents, but the number of units has grown to 4,129 million by 12.60% due to private placement in 2021. Besides, the revaluation of its investment properties and properties under development has contributed 30% to the REIT’s total return.
Ascendas has a year of impressive performance so far, partly by the bouncing business from the low compared with the pandemic and new acquisitions overseas and domestically. The property revaluation and the Government tax property rebates play a role in the contributions. If Ascendas can maintain the strategies by adding more portfolios and increasing the rental income revenues in 2022, unitholders can benefit from the growth in the business expansion.
Financial Position
Ascendas has low leverage of 35.90% though it is above the 32.80% for 2020. The commonly used ratio for REITs is total debt/total equity and deems well below the statutory limit of 50% set by the Singapore authority. The REIT still has more room for financing new projects in the future.
Besides, Ascendas has made forex hedges against currency volatility to preserve its investments. The hedges make up 72% of its portfolio, up 4% more than 2020.
Possible Issues
Interest rates: The global economy is down the path to times of high inflation and rising interest rates. The REIT is no exception and faces high-interest expenses in a rising rate environment. The good news is that Ascendas has lower debt on the balance sheet; the bad news is it will meet higher interest payments for existing and future loans.
The possible outcome for Ascendas is reduced distribution income for unitholders unless it chooses other alternatives to loan financing. No matter which financing options the group may use, it has to face rising financing costs and potential lowering profits in the coming days.
Ascendas has almost 80% financing on fixed-interest terms with an average of 3.6 years. However, the group states a 20 basis increase in interest rate reduces distribution income and DPU by S$2.5 million and 0.06 cents, respectively.
Recession: The International Monetary Fund warns that the world economy may enter post-pandemic stagflation, which co-exists inflation and unemployment. As such, the REIT may have difficulty managing to raise prices and revenues and reduce costs in such an uncomfortable situation.
Portfolio expiry leases: Ascendas has a healthy occupancy rate of 93.20% and a positive rental reversion of 4.50% from its portfolio properties in 2021. However, more than 10% of its property leases are renewed for the next 4 years.
2023 is the peak of over 20% of portfolio leases that will expire for rental renewal. The management may face a tough time for rental negotiations ahead in a difficult economic situation, especially in the Singapore market, where the expiry rates are double digits from 2022 to 2024 before sliding into a single one.
The concentration of income sources: Ascendas has portfolios of properties for 11 industrial purposes; among these, 3 industrial properties form 60% of its income sources: biomedical and Agri/aquaculture; information technology and data centers; engineering property activities. A high concentration of income sources for these industries may risk sudden and heavy income loss for the group’s revenue.
Oversupply: Ascendas will face tough competition in 2022 and subsequent years as more new industrial buildings are in service in the Singapore market. The group’s local portfolio forms 61% of its real properties of S$16.3 billion. A possible oversupply may create price pressure for rental rates and occupancy levels.
Negative working capital: The group has a fourfold increase in short-term liabilities over short-term assets. The increased deficit comes from a significant increase in short and mid-term borrowing. Ascendas may face a tight near-term liquidity issue on consequences of late rental payments or defaults in an economy facing headwinds.
Is Ascends a Good Stock to Buy?
Ascendas has a solid capital structure and an impressive performance for 2021. With its low gearing ratio and quality assets, the REIT has ample room for further expansion and growth in revenue and income for unitholders. Nonetheless, confronting changes from the post-pandemic economy and stagflation worldwide, The REIT has to go to lengths with increasing its revenue and containing its expenses to boost distributional income.
The management has to face price and occupancy pressure brought by oversupply issues. It should balance income sources by minimizing reliance on the 3 sources and expanding the industry mix to avoid abrupt income loss. Unitholders may expect prudent management of working capital. The group is in better shape for the new year.
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Conclusion
Ascendas is a leader in industrial, high-tech properties, and data centers management businesses. The group has a well-run business model and diversified portfolio of business properties in developed markets worldwide. The management may face some challenges ahead to expand its business further.
Key Takeaways
- Ascendas has a solid capital structure and an impressive performance for 2021.
- Ascendas faces stagflation and oversupply challenges in 2022.
- Ascendas confronts increasing interest hikes and may reduce distributions per unit.
- The group has to solve issues of income source concentration and negative working capital, and portfolio lease expiry.
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