Review of Ascendas Reit FY2021 Results

It's earnings season again and several counters of interest have released their financial results over the past week.

 

While I have not had the opportunity to review all of them, I found some time to run through Ascendas Reit's FY2021 results which were released yesterday.

 

Ascendas Reit is my biggest holdings and I have added some more couple of weeks ago.

Below are the summary and some of my observations and views for sharing purpose.

 

 

Summary

 

For results comparison, I am more interested in YoY rather than QoQ as I find it more meaningful.

 

Overall it is a good set of results I must say.

 

Distribution announced is 7.598 cents per unit and will be paid out on 11th March 2022, Friday.

Total DPU for FY2021 is 15.258 cents per unit.

 

 

The Good

 

Revenue, NPI, DI and NAV all improved, largely driven by contributions from the newly acquired properties.

 

Overall portfolio occupancy improved to 93.2% and positive rental reversion of 4.5% achieved.

 

DPU also increased YoY.

Portfolio WALE by gross revenue of 3.8 years.

Cost of borrowing dropped to 2.2%.

About 79.4% of borrowings are on fixed rates. This is good for a rising interest rate environment.

 

Interest coverage increased to 5.7 times. Well covered.

Australian portfolio has average rental escalations of approximately 3% per annum.

USA portfolio has average rental escalations of 2.5% to 4% per annum. 

 

Well diversified customer base and portfolio means lower concentration risk.

 

Top 10 customers account for only 18.3% of the monthly gross revenue.

 

No single property accounts for more than 4.3% of the monthly gross revenue.

 

I also like the fact that the Reit manager's interest is sort of aligned with the unit holders'.

 

The management fee payable to the manager comprises of two components - Base fee and Performance fee.

 

The base fee is 0.5% per annum of the deposited properties while the performance fee is 0.1% per annum of the deposited properties.

However the latter is only payable if the annual growth of DPU in the FY exceeds 2.5%.

In other words it will do the manager good to achieve a DPU growth of at least 2.5% yearly.

The performance fee payable in FY2021 is supposed to be S$15.8 M. However actual payout is S$7.4 M as the manager has made a one-off waiver.

 

The Not So Good

 

Gearing increased from 32.8% to 35.9% YoY.

 

Personally this is still fine with me. Moreover there is ample headroom of ~S$4.8 B for future acquisitions before hitting MAS's leverage limit.

 

The 4.5% rental reversion is nice but if we delve deeper into the different segments, rental reversion for business spaces actually dropped from 7.2% in FY2020 to 2.9% now. 

This might point to a softening in the demand for this segment which is a slight cause of concern because among the leases expiring in FY2022 and FY2023, this segment contributes to the largest share at 33% and 43% respectively.

Having said that, the management is expecting overall rental reversion for FY2022 to be positive albeit in a low single digit range. This is for about 18.7% of the overall gross rental income for the year.

Conclusion

No doubt a well-run Reit. Although the share price has ran up today as a reaction to the financial results, it is in my opinion, still cheap.

Relative valuation

 

Based on the reported NAV and today's closing price of $2.31 and $2.88 respectively, Ascendas Reit P/NAV stands at around 1.25.

 

I did some manual calculations of the Reit's historical P/NAV based on values from its website for 2017 to 2020.

 

The P/NAV ranges from 1.20 (in 2017) to 1.37 (in 2019). Averaging out we get 1.29.

 

Hence the current P/NAV is at a slight discount to its 5 year historic P/NAV.

 

DPU

 

Although it is more important to look at the overall picture of the various metrics to gauge the performance of the Reit, investors myself included, often look at the DPU first to assess the Reit.

 

Afterall this is the reason for buying into Reits in the first place.

 

Hence I want to include a short piece on the DPU payouts by Ascendas Reit.

 

If we compare the DPU from FY03 all the way to now FY2021, the Reit has a yearly increase in DPU payouts except for FY09 and FY2019.

 

This is nearly 18 years of consistent DPU growth YoY.

 

In FY09 where the DPU dropped, it increased again immediately in the next FY and the uptrend continues all the way to FY18/19.

 

(One thing to note though, it took 6 years for the DPU to reach the level prior to the drop in FY09)

 

Of course historical trend is for reference only. But personally I believe the Reit is well poised to continue the uptrend trajectory in DPU.

 

Lastly, current DPU yield is 5.3%. Whether this is good enough is up to individual.