Ascendas Reit is Singapore’s first and largest listed business space and industrial Real Estate Investment Trust.
It's portfolio is well-diversified across five major segments of the business space and industrial property market.
As of december 2020, there are
- 96 properties in Singapore
- 36 properties in Australia
- 38 properties in the United Kingdom
- 30 properties in the United States
#1 Ascendas expanding closer to Tech industry
Data Centres (DCs) in Europe
Ascendas REIT recently announced the completion of acquiring 11 European data centres (DCs) for $904.6M
This transaction increases DCs exposure to 10% of it's portfolio value.
The portfolio has a total net lettable area of 61,637sqm and has an occupancy rate of 97.9%.
In addition, it has a Weighted Average Lease Expiry (WALE) of 4.6 years.
The properties are tenanted by 14 customers in the Financial services, Telecom, IT, Retail and Education sectors.
The DCs are situated in 3 of the 4 FLAP markets (Frankfurt, London, Amsterdam and Paris), top-tier data centres in Europe.
According to property consultant CBRE, these markets enjoy strong capacity growth, driven by robust take up and declining vacancy levels.
- 4 in UK
- 3 in Netherlands
- 3 in France
- 1 in Switzerland
The acquisition has low expiries of 9.5% and 12.3% in FY21F and FY22F respectively.
In addition, the NPI yield is 6%.
Approximately 83% of the leases by rental income have in-built rental escalations of between 1%-3% p.a.
58% of the leases by rental income are on triple net lease structures.
It is evident Ascendas has been accelerating it's overseas diversification efforts, especially in the Tech sector.
This acquisition has been widely anticipated following the S$1.2B equity fund raising in Nov 2020.
Offices in SoMa
Besides the acquisition of DCs, the funds raised were used to purchase 2 LEED platinum-certified Class A office buildings in San Francisco
Located in South of Market (SoMa) 510 Townsend Street and 505 Brannan Street.
It was acquired for S$768m from third party vendors.
SoMa is the leading sub-market in San Francisco with one of the highest concentration of Tech tenants.
The offices are strategically located; well served by trains and an abundance of amenities such as restaurants, bars and museums.
The newly completed properties in 2017 are fully leased to 2 high quality technology tenants, Stripe and Pinterest
It has a long Weighted Average Lease Expiry (WALE) of 9.1 years.
Net property income yield for the first year is approximately 4.9%
Since the offices are fully leased, the occupancy rate is 100%.
These two companies will further increase Ascendas Reit’s exposure to the growing technology, biomedical and digital media industry in the US.
This further enhanced Ascendas Reit’s foothold within the technology and new economy sectors.
#2 Ascendas aggresive expansion overseas
Ascendas Reit has targeted Australia as one of the key drivers of growth.
It has been acquiring logistics facilities since 2015.
Management perceives the Australian industrial market as mature and provides opportunities for growth.
Proposed Acquisitions are of high quality; income-producing assets with established tenants.
This will strengthen A-REIT’s ability to fulfil its mission to generate stable and predictable income streams and long term capital stability.
It's first Australian acquisition (S$1,013 million) comprising of a gross floor area of approximately 630,946 sqm. The assets are cross 26 prime institutional grade logistics properties on freehold land across Australia.
The modern and mostly new properties are located in the core industrial markets of Sydney, Melbourne, Brisbane and Perth. They are also within 40 kilometres from their respective central business districts (CBD).
As the years passed, Ascendas has acquired more properties in Australia.
It's most recent acquisition stands at S$303.3 million. A suburban office property located at 1 – 5 Thomas Holt Drive, Macquarie Park, in Sydney, Australia.
The total net lettable area is 39,188 sqm and has a Weighted Average Lease Expiry (WALE) of 4.5 years.
It has 100% occupancy rate and NPI yield is estimated at 5.9%
In 2018, Ascendas made their first move into Europe.
It acquired a portfolio of 12 logistics properties in the United Kingdom for £207.27M
Thie transaction is aligned with the goal of growing its international presence.
Strategically located in established distribution centres with good connections to core urban areas.
The properties are well-poised to capitalise on the growing demand for supply chain and logistics services in the UK market.
In addition Ascendas acquired another portfolio of 26 logistics properties in UK.
It has a combined net lettable area of 266,184 sqm. With 100% occupancy rate and a long Weighted Average Lease Expiry (WALE) of 9.1 years.
The total acquisition cost was S$459.18m and has an estimated NPI yield of 5.54%
Its key tenants are Aston Martin Lagonda, Royal Mail, Amethyst Group and Sainsbury.
#3 Stagnating growth in SG industrial and business park
Ascendas move towards overseas acquisitions could be attributed to slow domestic growth.
According to JTC industrial reports, rental for industrial space across all market segment fell 1.5% YoY.
In fact, rent has been declining/ remain flattish since 2015.
The main draggers are in logistics and light industrials.
In addition, 25% of Ascendas properties are in Industrials and and another 25% are in logistics.
Hence, Ascendas has been experiencing slow growth and lacklustre performance, especially in Singapore.
Before 2015, Ascendas properties are mostly in Singapore. However come 2021, it has 40% of it assets overseas.
In 2020, only 1 out of 7 acquisition was in Singapore, a 25% stake in Galaxis.
The other 6 acquisition were in USA and Australia.
This further shows management’s pessimism on domestic growth.
It is worrying as Ascendas Singapore properties have an average of 87.6% occupancy rate.
This shows that there is no excessive demands in Singapore.
For example, 2 Corporation Place is 69% occupied. Another example is Ascendas IBP which has a below average occupancy rate of 55%
Stagnating domestic growth has been reflected in Ascendas DPU. Ascendas has seen moderate growth from FY13/14 (14.24) to FY18/19 (16.035).
However, it fell sharply in FY2019 to 11.490 The DPU for FY2020 was 14.688.
Below is a chart to better reflect Ascendas DPU growth.
Stable and strong sponsor
Ascendas Reit is a fundamentally stable company with a strong sponsor Capitaland.
Despite the -6.1% YoY decrease in DPU, its gross revenue increased 13.6%
However, Distributable Income (DI) fell in 2020 due to rental assistance and support given out to help struggling tenants.
It has a stable portfolio occupancy rate of 91.7% Rental reversion swung from negative 2.3% in 3Q20 to positive 2.5% in 4Q20.
The recovery was supported by strong positive rental reversion of 18.8% for its US portfolio driven by business park properties in Portland.
On a full-year basis, rental reversion was positive at 3.8% in 2020.
Ascendas leveraged on the low-interest rate climate to raise funds. It also carried out equity raising in Nov 2020 in anticipation of overseas acquisition.
DPU Is the amount of dividend a REIT investors receive for every unit he holds. It is calculated by the formula
DPU = Distributable Income(DI)/ Total Number of Units Outstanding.
Thus, a fall in DI and an increase in number of units due to equity raising caused DPU to fall.
If the acquisitions of overseas properties such as DCs and Offices are accretive, Ascendas will see YoY increase in DPU in years to come.