Back in October 2020, the COVID-19 pandemic had shown no signs of letting up, 10 months after the first infection was reported in Singapore.
The ensuing economic fallout was severe.
Even Singapore’s largest real estate investment trust (REIT), Ascendas REIT (SGX: A17U), was not spared.
The REIT reported negative rental reversion at many of its Singapore assets and warned of a weak market outlook caused by uncertainty over the pandemic.
But fast forward a few months, and we now have a slightly less hazy view of the road ahead.
Ascendas REIT recently released its full financial report for fiscal year (FY) 2020, and here are four important takeaways.
NPI increase, DPU dips
Ascendas REIT’s gross revenue for the year came in at S$1.05 billion for FY2020, a year on year increase of 13.6%.
Net property income (NPI) and distributable income also improved year on year by 9.4% and 6.7%, respectively.
The increases were largely due to the REIT’s acquisitions over the past year, which includes 28 business parks in the US, two Singapore business parks as well as two properties in San Francisco.
The heightened contributions were partially offset by rental rebates offered to the REIT’s tenants to tide over the pandemic.
The rebates amounted to a total of S$17.8 million.
However, unitholders might be bummed that the REIT’s distribution per unit (DPU) has declined.
For the second half of 2020, Ascendas REIT will be paying unitholders a DPU of S$0.07418, a slight year on year decrease of 0.9%.
The lower DPU, despite an increase in distributable income, was due to a larger base of units for the REIT.
Towards the end of 2020, Ascendas REIT raised S$1.2 billion through a private placement and preferential offering.
The move enlarged the REIT’s unit base by over 398 million units.
A resilient portfolio
Ascendas REIT’s portfolio consists of 200 industrial properties across Singapore, Australia, USA, and UK.
The properties host over 1,450 tenants from over 20 industries, with no single tenant forming more than 3.9% of the REIT’s monthly gross revenue.
With such a well-diversified portfolio, the REIT has been able to weather last year’s storm better than most.
As of 31 December 2020, the REIT’s overall portfolio occupancy remained stable at 91.7%.
Ascendas REIT also enjoyed positive rental reversions of 2.5% in the fourth quarter of 2020, a positive sign after negative reversions of 2.3% in the prior quarter.
Overall, the REIT enjoyed positive rental reversions of 3.8% in FY2020.
The positive reversions are an encouraging sign as 36.2% of the REIT’s gross rental income is due for renewal in FY2021 and FY2022.
Potential for more acquisitions
Ascendas REIT’s acquisitions helped it to grow NPI and distributable income despite 2020 being a torrid year for REITs in general.
With the REIT reporting aggregate leverage of just 32.8%, the REIT is well poised to take advantage of acquisition opportunities in the coming year.
The REIT still has available debt headroom of S$5 billion before it reaches the 50% ceiling set by MAS.
With the REIT having already announced a series of proposed acquisitions of Australian office and logistics properties, unitholders can look forward to more such announcements.
Back in November 2020, the REIT revealed that it is looking to acquire approximately S$614 million worth of data centre assets in Europe.
Data centres have become one of the fastest-growing asset classes, as accelerating digitalization has pumped up demand for data storage solutions.
In its earnings report, Ascendas REIT echoed its sentiments from its last business update in November.
The REIT shared that despite the rollout of vaccinations, many countries are still facing a surge in COVID-19 infections.
Companies across the world remain cautious and are putting off expansion plans until the pandemic winds down.
But Ascendas REIT is not sitting idly by and is making bold moves to bolster its portfolio by acquiring assets that cater to the growing technology sector.
These acquisitions should help diversify the REIT’s asset profile and help it to emerge stronger when the global economic recovery arrives.
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Disclosure: Herman Ng does not own shares in any of the companies mentioned.