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Thursday, July 02, 2020

Ascendas REIT Analysis @ 2 Jul 2020

Basic Profile & Key Statistics
Ascendas REIT (AREIT) is a diversified REIT which has majority of properties are in Office, Industrial and Logistics sectors. At this moment, AREIT has the largest market cap in SREITs. It is often viewed as a good SREIT counter by a lot of investors, so let's go through it and see.

Lease Profile
As a market leader, AREIT occupancy is not fantastic.WALE is slightly lower than median. Lease expiry is quite spread out at which highest expiry is 19.4% in FY2020. Most of its income is received from Singapore properties. As such, its weighted average land lease expiry by GRI is not long as compared to those with oversea freehold properties.

Debt Profile
AREIT gearing, cost of debt and fixed rate debt are very close to SREITs median value but unsecured debt % is higher than median. Interest cover is high at 5 times. WADE is long at 3.8 years as well. Debt maturity is quite well-spread, where highest debt maturity if only 18% in FY 2024.

Diversification Profile
AREIT has around 200 properties where 81.2% of its income is received from Singapore properties. Both top property and top tenant GRI contribution is less than 5%, which is very well diversified. Top 10 tenants only account for 18.5% of its GRI.

Financial Metrics
Property yield is high at 6.2%. Despite its giant size, management fee is quite competitive, where unitholders received $8.70 dividend for every dollar paid, which is the best among SREITs with market cap $5 billions and above. Distribution margin at 53.2% slightly higher than SREITs median. It has very small income support at 1.8% of distribution.

DPU did not changed much for past 5 year where NAV per unit is slightly increased for the past 5 years. 

Fundamental Valuation
 Favorable Less Favorable
 Unsecured Debt  Weighted Average Land Lease Expiry 
 Interest Cover Top Geographical Contribution
 Well-Spread Lease Expiry 
 Well-Spread Debt Maturity 
 Diversified Sector 
 Top Property Contribution 
 Top Tenant & Top 10 Tenants Contribution 
 Property Yield 
 Management Fees 
Overall fundamental is quite good. Given the recent acquisitions and divestments, I believe DPU wouldn't change much. So far it is unknown for COVID impact on its performance. 

Relative Valuation
i) Average Dividend Yield
As AREIT did not declared DPU for last quarter, dividend yield of 4.67% is based on annualized DPU for past 1 year. Apply annualized DPU of 15.32 cents to average yield of 6.08% will get S$ 2.52. However, if we take the 16.136 cents as per pro forma DPU announced on 01 Nov 2019 for "Proposed Acquisitions Of A Portfolio Of United States Properties And Two Singapore Properties", we will get the price of S$ 2.65.
ii) Average Price/NAV 
Average value is at 1.25, apply latest NAV of S$2.18 will get S$ 2.73

Author's Opinion
Ascendas REIT is 1 of SREITs which is always perform capital recycling, in another word, acquire  new properties and divest non-core/performing properties. As its portfolio size is very big, recent acquisitions would not have much impact on its DPU. For valuation:
i) Fundamental Intrinsic Value = (Removed)
ii) Relative Valuation - Dividend Yield = S$ 2.65
iii) Relative Valuation - Price/NAV = S$ 2.73
At current price of S$ 3.28, it seems overvalue. DPU and NAV did not grow much but share price keep increasing. AREIT is indeed a strong SREIT, but should investors just accept any price?

*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee the accuracy, completeness and reliability. It should not be taken as financial advise or statement of fact. I shall not be held liable for errors, omissions as well as loss or damage as a result of use of material in this blog. Please always do you own due diligence before any decision is made. 

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