Monday, June 8, 2015

Invest In What You Know? (1) Ascendas REIT

Today, I had the opportunity to visit a building that is part of Ascendas REIT's portfolio.


The building was called Techlink and it was in the Kaki Bukit area. When I reached the building, I didn't even know it was owned by A-REIT until I saw the bright green (teal?) sign on the building.

Aha, a famous name! This building should be great!

Well, not really actually. I mean, the building was nice and clean. Architecturally you can't fault it. It looks like every other commercial building in that area. However, what got me was that the units on the ground floor were completely vacant. Aren't the ground floor units the "best" ones?

I remember sitting in a friend's car and we were driving somewhere. Beside the expressway somewhere in the west, I spotted a building with the similar A-REIT green sign on it. If I'm not wrong, I saw signage advertising that there is space available. It looked like there was a lot of space available to me, but what do I know?

So I went online to check their latest investors' presentation. I think my hunch was quite right. They have a portfolio occupancy rate of 87.7%. The current most hated industrial REIT, Sabana REIT, has an occupancy of 90.6% and is spitting out a yield of 8.4%. Mapletree Industrial has an occupancy of 90.2% and yields of 6.8%. I know that I'm not comparing apples to apples, but I'm just saying, that's all.


Ascendas REIT is one of the biggest REITs in Singapore by market capitalization if I'm not wrong. At it's current price, it's pumping out about 6% yields, making it the lowest yielding industrial REIT. Their P/NAV ratio is selling at a 16% premium over book value. It's not an insanely expensive valuation, but its valuation is on the high side for the industrial REIT subsector.

When I have lunch at the coffeeshop in my area, it is very common for me to see fliers for some industrial space. If I am not wrong, they are all strata-titled and in tight, condensed, but spiffy looking buildings. Of course, those kind of buildings attract SMEs while REITs attract bigger companies which are more "stable", but you still have to remember that 99% of enterprises in Singapore are SMEs. I can imagine why an SME would prefer a strata-titled unit, since you would get all the benefits of being an owner instead of a renter.

While at the REIT Symposium 2015, one of the more interesting observations I heard was about the general decline of strata-titled shopping centres. All the reasons why REITs are generally better choices (I can think of a few reasons why a REIT shopping mall is not always the best choice for a business) are logical and observable in real life. However, industrial space? I'm not so sure that the "REIT bonus" here can be easily justified and seen as easily as compared to retail spaces.

I am not vested in Ascendas REIT, but as a trust, it looks good enough to me. However, as an investment, I would rather wait for a more attractive offer to become a shareholder. Right now at this price? Not interested.

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