CapitaLand Ascendas REIT is now trading ~6% dividend yield. For Singapore’s largest industrial REIT, this sounds attractive. Is it time to buy now?
Let’s dive in.
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At S$11 billion market cap, Ascendas REIT has a highly resilient operation. During its latest financial year results, this major industrial landlord managed to maintain its revenues, net property income and distributions per unit (DPU).
This was despite changes to global interest rate cycles.
What’s more, Ascendas REIT continues to see strong leasing demand. It has achieved a high occupancy rate and a positive rental reversion of 12% – driven by renewals in its multi-tenanted buildings.
One of the biggest sources of new demand were logistics, supply chain, electronic, and data centres sectors. This comes as more tenant companies move into cloud computing, consumers using smartphones and growing the “internet of things”.
Simply put, Ascendas REIT has built a strong operating track record over time.
CapitaLand Ascendas REIT’s S$1.4 billion acquisition
Recently, Ascendas REIT announced its equity offering to acquire three properties worth ~S$1.4 billion. This is ~10% of its market cap. The deal could further raise the REIT’s DPU by 4%. Not too bad. Not too bad.
You’ll expect Mr. The market reacted positively but instead shares went no where after the announcement.
So what’s missing here?
Now, access to cheap capital and sentiment play a big role in Singapore REITs – especially their stock prices. The more cheap capital that’s available, the higher REIT prices will move. This encourages mergers and acquisitions.
Why?
This is because of collateral. REITs are, after all, financing vehicles that take advantage of cheaper short-term debt and invest in longer, higher yielding property assets.
By right, this environment should benefit REITs today. Since last year, the Fed has already begun lowering interest rates. And access to cheap capital should do well for Singapore REIT prices.
However, with the recent Iran war, higher oil prices and renewed inflation concerns have led to the Fed now holding interest rates. This has led to a change in sentiment that’s now completely different from last year.
So… Is it time to buy CapitaLand Ascendas REIT for high dividends?
If you’re just getting started with Singapore REITs, CapitaLand Ascendas REIT at ~6% dividend yield today is a very reasonable starting point.
The thing is, last year’s opportunities were a challenge – back then Singapore blue-chip REITs were trading much higher than today. What’s more, there still aren’t that many Singapore blue-chips that trade such high yield.
Furthermore, Ascendas REIT’s balance sheet is manageable, with gearing to stay ~40%, even after its recent acquisition announcement.
Overall occupancy rate could also rise closer to 92%, once all its new assets are put in the REIT. Fundamentals still look healthy.
Would I personally buy CapitaLand Ascendas REIT today?
Now, let’s push this a little further.
If you ask me if I would personally buy Ascendas REIT, my answer is clear:
If I didn’t own AIMS APAC REIT and Mapletree Industrial Trust – both having a much higher dividend yield on cost for me – already for my Personal Portfolio, I would have considered CapitaLand Ascendas REIT at 6% yield.
I’ll explain.
Example: For many years, both Ascendas REIT and Mapletree Industrial Trust traded much closer to 7% dividend yield many years ago.
In fact, Ascendas REIT had consistently traded around 7% yield…
Both were viewed as massive industrial landlords. But their business models have diverged over the years.
Mapletree Industrial Trust has evolved closer to a data centre landlord, with a huge exposure to digital-related assets.
Meanwhile, Ascendas REIT has largely remained a traditional industrial landlord. Today, only ~13% of its assets are in data centres.
This difference matters
Traditional “last-generation” industrial properties – like logistics, warehouses, light industrial buildings – that sit on Singapore land have shorter land leases.
This typically requires higher yields to compensate for lease renewal risks. As a dividend investor, you might regularly get “called” to put more money through rights issues to extend these land leases.
On the other hand, data centres enjoy longer leases that allow investors to accept lower yields and higher growths.
The more I think about this, the more I expect traditional industrial players like Ascendas REIT to trade at a higher dividend yield than peers like Mapletree Industrial Trust.
Look, I’ve only so much capital. And the real question is whether I’m getting the “best bang for my buck” in Singapore REITs?
My final thoughts
I’ve spent most of my investing career looking at income stocks, especially Singapore REITs. There are Singapore REITs I’d be scared to own.
CapitaLand Ascendas REIT has an excellent track record. And buying into the REIT’s fundamentals look okay.
What’s more, the risk-to-reward ratio is definitely much better for a Singapore blue-chip trading at ~6% dividend yield than a year ago – also great for a solid starting point as a beginner.
On the other hand, my Personal Portfolio is fully invested. When I’m allocating capital, I need to ask myself a tougher question: Am I getting the best opportunities right now in Singapore REITs for dividends?
And that’s the question I believe every dividend investor must ask when evaluating new opportunities.
Your logic is reasonable. I have all 3, ie Aimsapec, MApletree and Ascendas for many years. All 3 are good stocks.
Hey Prasad, thank you for your comments. Any top favourite amongst your 3 stocks mentioned?
Cheers,
Willie