CapitaLand Ascendas Reit H1 DPU declines 2% on higher interest expense, enlarged unit base

CAPITALAND Ascendas Reit (Clar) posted a distribution per unit (DPU) of S$0.07719 for the first half ended Jun 30, down 2 per cent from the corresponding year-ago period, its manager announced on Monday (Jul 31).

This comes as the total amount available for distribution declined by 1 per cent to S$327.5 million, which was attributed to higher interest expense resulting from rising interest rates. DPU was also lower due to an enlarged unit base following the real estate investment trust’s (Reit) private placement in May. 

Revenue for the period climbed 7.7 per cent to S$718.1 million, from S$666.5 million, due to the acquisition of seven logistics properties in Chicago in June last year, the acquisition of three Singapore properties in the first half of 2023, as well as the completed acquisitions of two properties in Australia in February 2022.

Higher utilities income and an increase in service charge earned from the Singapore properties also contributed to this jump. 

Net property income rose 6.7 per cent to S$508.8 million, from S$476.9 million. 

Property operating expenses grew to S$209.3 million from S$189.6 million, which the Reit manager noted was due to completed acquisitions in FY2022 and the first half of FY2023 as well as higher utility costs incurred in Singapore. 

The Reit’s portfolio occupancy was stable at 94.4 per cent as at June 2023, slightly above the 94 per cent occupancy a year earlier.

Markets in Singapore, Australia, United Kingdom and Europe recorded improved occupancies over the past year, but occupancy in the US dipped to 92.1 per cent from 95.3 per cent a year earlier.

Clar achieved an average rental reversion of 18 per cent for its portfolio for leases renewed in Q2 2023. The manager is guiding for “positive high single digit” growth for the full year.

The Singapore logistics segment led the increase in rents, with a 39.1 per cent reversion.

William Tay, chief executive of the manager, said in the earnings call that there is still a supply and demand imbalance for logistics properties with “hardly any supply” currently. He noted that companies have been shifting from “just in time” to “just in case” operations management, which has driven demand.

Tay said the manager will continue to be cautious and leverage its balance sheet, operational capabilities and diversified portfolio to safeguard and expand its business.

He noted that market expectations are for more transactions to take place in the second half, as interest rates are likely close to their peak.

“We do see more interest to transact,” he said, adding that the manager has also been quite active. The Reit has around S$1 billion of debt headroom before aggregate leverage hits 40 per cent, and Tay said they would be able to use this when an opportunity arises.

Tay added that the Reit is on track for a potential acquisition in Europe that was previously announced. Due diligence has been completed and details are being finalised, he said.

As at Jun 30, Clar’s aggregate leverage stood at 36.7 per cent, with a weighted average all-in cost of borrowing of 3.3 per cent. Some 82 per cent of its borrowings are on fixed rates.

Clar has S$668 million of debt that is due to be refinanced in FY23. The average cost of these borrowings is currently around 2 per cent. A 100 basis point increase in interest rate on refinancing is expected to have a pro forma impact of S$6.7 million decline in distribution or 0.16 cents decline in DPU.

Clar said its portfolio valuation remained stable as at Jun 30, with its 230 investment properties worth S$17 billion.

Apart from acquisitions, the manager would also consider opportunities to redevelop existing properties, if there are opportunities to unlock plot ratio or increase rentals.

Clar said on Monday it will be redeveloping an industrial property at 5 Toh Guan Road East, for an estimated total cost of S$107.4 million. The redevelopment, which is expected to be completed by end-2025, would increase gross floor area by 71 per cent.

“I think in Singapore, there’s still more opportunity for us to redevelop,” Tay said. “We believe that the location that we are sitting on is a very good location, and if we can find the right usage to be able to get a higher rental, that will help us to reposition our assets.”

Units of Clar fell 1.4 per cent or S$0.04 to close at S$2.81 on Monday, before the announcement.