As one of the leading pioneers within the Singapore REIT space, Ascendas real estate investment trust (“AREIT”) has announced the pricing of a 7-year SGD green bond. The new issue has an initial price guidance (“IPG”) of 3.75%, and it will be a fixed rated, senior unsecured bond that is expected to mature in April 2029. The orderbooks as at 11.40am are in excess of SGD 200m.
Ascendas REIT owns a well-diversified portfolio that comprises of 220 properties across Singapore, Australia, the United States and the United Kingdom. For FY2021, the REIT managed to execute a record of SGD 2.1b worth of new investments, boosting its overall portfolio of investment properties to SGD 16.3b. Notably, Ascendas REIT’s portfolio mix as at 31 December 2021 is well spread out across different sectors such as business space (48%), logistics (23%), industrial (20%) and data centres (9%). Ascendas Fund Management Limited, the manager of Ascendas REIT, is a wholly-owned subsidiary of Singapore-listed CapitaLand Investment Limited, which is a leading global real estate investment manager with a strong presence in Asia.
Proceeds from this bond offering will be used to finance or refinance, in whole or in part, the Eligible Projects in accordance with the Ascendas REIT Green Finance Framework. Under the framework, Eligible Project categories include green buildings, renewable energy, energy efficiency, waste management, sustainable water management and clean transportation. Both the issuer and new issue are expected to be rated “A3” by Moody’s. The green bond may be redeemed early for tax reasons, or upon the termination, cessation or suspension in trading of units in Ascendas REIT.
Despite facing challenges due to the pandemic, Ascendas REIT posted a 16.9% increase in gross revenue for FY2021 compared to a year ago. Net property income increased 18.6% from SGD 776.2m to SGD 920.8m as a result of newly acquired properties in the past 2 years, while distributions per unit (“DPU”) rose 3.9% to 15.26 cents for FY2021. Its portfolio also recorded a higher occupancy rate of 93.2% as at 31 December 2021 compared to 91.7% in 2020. The portfolio’s weighted average lease expiry was 3.8 years as at the end of last year, while rental reversions grew 4.5% for all renewed leases in FY2021. As such, portfolio’s lease expiry is well-spread with leases extending past FY2036, thus providing good revenue visibility for AREIT.
Moving on to its credit profile, Ascendas REIT still maintains healthy credit metrics. As at 31 December 2021, aggregate leverage was at 35.9% (31 December 2020: 32.8%), providing a large debt headroom of ~SGD 4.8b before the aggregate leverage reaches MAS regulated limit of 50%. The REIT has an evenly spread debt maturity profile with a weighted average term of debt of 3.5 years, which helps to minimise its refinancing risks.
Interest servicing ability improved following the increase in interest cover ratio from 4.3x in 2020 to 5.7x in 2021, largely due to higher operating profit as well as the lower weighted average all-in borrowing cost of 2.2% in 2021. As for liquidity, the Group currently still has various credit facilities in place for it tap into in order to meet its short-term borrowings and investment opportunities.
We think that the new issue is attractive with an IPG of 3.75% for an investment grade issue with expected ratings of A3 by Moody’s. Compared to the AREIT 2.650% 26Aug2030 Corp (SGD) that is currently yielding ~3.46%, the new issue offers a higher yield with a shorter time to maturity. However, investors should note that the final price guidance for the new bond will likely be lower than the initial price guidance. Investors who are looking for stable income options may consider buying the AREIT Apr2029 bond.
Declaration: For or specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.
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