A-REIT Operations and its background

Describe about the Report for Investment and Portfolio Management of A-REIT Operations.

The company we have selected for our analysis is A-REIT Ascendas Limited. The company is based in Singapore and has an overseas presence in Australia and China. The company provides facilities to its investors like capital gains on their investments. The company invests in Real Estate, which generates the profit. The Ascendas A-REIT is a trust whose incomes are generated from investments made in logistics and business parks. The company is actively involved in investing in the sector of Real Estate and providing a variety of services to its stakeholders Ascendas-REIT largely generates its income by allowing anyone to extend their investment in the large properties by the purchase of stocks (Haight and Singer 2005). The stakeholders earn the same way in A-REIT as buying stocks over the limitations of physically buying a property or investing in it.

The company provides long-term wealth creation facilities for its shareholders. The Singapore Stock Exchange lists this Real Estate Investment Trust under the publicly listed companies in Singapore having an overseas presence and operational capabilities. The trust is highly specialized and trained to handle wealth creation via its Real Estate properties in Singapore, Australia, and China (Phillips and Freeman 2010). The company operates in Shanghai to coordinate its Chinese Real Estate enthusiasm.

 Ascendas REIT is widely involved in the industrial sector of real estate. The trust is responsible for investing in science and business parks including logistics hubs, integrated processes of development, retail properties (IDAR), industries requiring high specification, development of data centers and logistics and equipment storage facilities.

The gross revenue of the company increased from S$ 503 million in the FY11-12 to S$761.08 million in FY2015-16. The company had constantly been involved in promoting its brand to spread the goodwill of the company far and large. The company started their operations since 2003 and had continuously improved their hierarchical structure and worked towards stable plans to improve the Trust’s portfolio.

The revenue increase is credited to the large-scale acquisitions plans and vast expansion strategies (Kesslerâ€ÂPark and Butler 2003). The company has ventured into the logistics park real estate plans since 2005. The company has sincerely improved their portfolio and has remained a top contender among its contemporaries in Real Estate Investment Trusts.

The Total current amount available for distribution in real estate ventures is S$301 million. The company would enhance its efforts to expand its business into the booming markets of China and Australia, where it already enjoys presence. The company would seek to increase its investments in business parks and science parks in future periods. The business trust tends to be constantly on the lookout for new business prospects (Barua, Choudhury and Borkakoty 2009). In the past, the company has made acquisitions from real estate firms of repute. Distribution of its profits into new ventures would enhance its prospects of capturing the booming Chinese market.

Services offered by the company

 The number of assets that belonged to the company was 102 worth 6564 million dollars in FY11-12. The number of assets in FY2012-13 was 103, worth $6569 million. The number of assets in the consecutive year 105 with total assets was worth 7358 million dollars. The next year’s figures were 107 listed properties with total assets value being 8160 million dollars. The financial year of 2015-16 saw the largest rise in the number of properties owned by Ascendas. The number of listed properties was 133 and the total valuations of the assets, 9870 million dollars. The total property as of now stands at 133 listings and increasing in number.

The number of assets was building up over the years. After the turn of the decade, the progress was slow. There was a huge time gap between a new venture and the next one. The number of properties is increased from 102, 103 to 105 in the three-year period. But one important parameter for judging these credentials is the increase in the total assets of the company. The differential in total assets from 11-12 was close to 1000 million dollars positive. The next year’s figures show a jump of 900 million dollars. The consecutive financial year saw the largest number of investments being made in this sector with total worth increasing by 1700 million dollars. This year saw the largest increase regarding new acquisitions and marking the beginning of a new hedging technique. The company received huge investments and consecutively upped their status in the Singapore Stock Exchange.

Ascendas has worked in collaboration with many overseas partners throughout the globe. The company is involved in providing technical support and consultation to its implementing agencies and partners abroad. Any company seeking to develop their operations in the real estate sector or is interested in building high technology business parks, but lack the confidence and the investments to fund and oversee the project, takes the help and guidance of Ascendas in developing the said project.

Ascendas works to develop the infrastructure in many countries including India and major Asian markets where their presence is strongly felt (MrzygÅ‚od and Nowak 2013). The free reign markets of many Asian nations is a huge prospect for Ascendas and it readily pounces upon any investment opportunities which looks promising in the eyes of the company. Ascendas has developed integrated technology parks where Information Technology companies have rented or leased the space and environment designed by Ascendas.  Facilities developed by Ascendas are precise and specific (Information technology 2005). The employees and workforce using the facilities of Ascendas are pleased to host in an environment of tranquility and serenity.

Financial Background

The financial parameters to judge the financial performance of the company can be varied, and the most efficient of them all are profitability ratios, Liquidity ratios and so on.

First, we shall study the profitability indexes and ratios of the company, which is the vitals of the survival of the company in the long and short run. The profitability ratios can be said to evaluate the level of revenue that the particular process(s) is generating for the company.

Figure 1: Profitability Ratio of Ascendas

(Source: As created by the Author)

The revenue margins pertaining to Ascendas does not showcase major changes in the previous three years. This confers the fact that the company has been unable to initiate adequate changes in sales management processes in order to attract newer sets of customer. It can also be inferred that the product pricing policy in inadequate towards improving the revenue margins.

EBT margins pertaining to the company displays major decrease in the previous three financial periods, thereby the company showcase diminishing levels of profit margins along with high levels of payments made in the form of interest. Moreover, the gross profit margins have remained the same over the past three years while the EBT highlighting a continuous downfall. This reiterates the fact the company has been unable cope up with large degree of interest payments along with ever-increasing levels of administrative costs.

The profitability is in turn dependant on a few factors mainly. The most important are Return on Investment (Revsine, Collins and Johnson 2005). The return on investments percentage is a way of knowledge for the investor who seeks to invest in the company to evaluate his future rate of returns. The return on assets is currently residing at 1.7%.  The property is the income generating machinery of a real estate investment trust, which looks to boost the trust’s portfolio to seek further investments.

The continuous fall in the net margin of the company in the past three periods while the gross margins remaining the same showcase the fact that the office and administrative costs along with costs pertaining to logistics have increased continuously without any positive impact upon the revenue. Moreover, the fall in levels of ROA reiterates the fact that the company has been unable to utilize the assets to facilitate profit generation.

Return on Equity is the parameter that is evaluated by a shareholder of the company. The current industrial comparisons drawn by agencies of repute and agencies handling data analytics and interpretation display a highly sustainable growth rate by the company.

Description of the number of assets and its value

The industry experts studying trends and patterns in this business sector states that the Return on Capital Employed of Ascendas is currently stationed at 5.23 per cent.  (The return on capital being so low is demotivating the company in increasing its size and stature of operations across the continent of Asia and Australia. This figure of return on capital is owed to the fact that the company has constantly been expanding and distributing sums of money in projects in the last year and so on. The number of properties self-owned and operated by Ascendas has increased from 105 to 133 in a single year. Therefore the return is not expected until the end of the forthcoming quarter. 

Figure 3: Current  and Quick Ratio of Ascendas

(Source: As created by the Author)

The current ratio pertaining to the company showcase a decline over the current period. From the figure above it can be inferred the fall in current ratio is substantial, stating the fact that either the company has had taken in substantial quantum of short-term debt or in unable towards paying its creditors.

The long-term solvency ratios are synonymous with liquidity ratio. The liquidity ratio of a company is the ratio of the total assets to the total liabilities (Thadden 2002).

The long-term solvency ratios can be understood as an evaluating tool for measuring the total debt to the total assets ratio that is, in general, the financial performance of an organization.

The liquidity ratio pertaining to the company stands at 1.203 and 1.209 in terms of quick and current ratio respectively. The industry comparisons suggest this ongoing trend in the company this fiscal and before (Lee 2001). The patterns of dealings and trade volume indicate that the growth of the company has just started, and the investors are expected to get maximum return on their investments after the turn of this fiscal.

Gearing ratio analysis of Ascendas REIT

Figure 4: Capital-Gearing Ratio of Ascendas

(Source: As created by the Author)

Figure 4: Debt to Equity Ratio of Ascendas

(Source: As created by the Author)

The degree of leverage is persistent over the three financial years at an unfavorable margins of 1.5 thereby leading to the inference that the company has taken up considerable amount of risks. Moreover, the saturation in the levels of revenue revealed that procuring capital from external sources has not paid off for the company as it has being paying high quantum of cost of capital whereas it could have procured capital using share issue. The total debt to equity ratio stands at 0.803 in March end, 2016 as compared to 0.66 in the previous annual period. This ratio suggests an increase in the level of borrowing from the respective markets to the investments made. The rate of return on investment is also low which indicates that the unit holders of the trust are yet to reap the harvest of their investments.  The gearing ratio indicates the strength of the financial fitness of the company. A high ratio indicates that the debts are higher than equity. The capital gearing ratio of the company is showcasing the fact that the company has been less dependant upon external sources for procurement of finances.  The company has preferred internal sources of funding in order to mitigate the risks pertaining to interest payments at regular intervals irrespective of the degree of revenue to be generated during that period. The current ratio stands at 1.5X which indicates that the company should perform well in financial terms in the forthcoming periods. 

Ascendas ventures in the past and the present

The Net Assets Value per unit share trends is discussed below. In the financial year of 11-12, the NAV was 1.88. In the FY12-13 the NAV was situated at 1.94. The next fiscal of 13-14 saw a slight increase of 2.02 and consecutively in the next fiscal it rose to 2.08. In the financial year of 2015-2016, the Net Assets value per share unit decreased to 2.06.

The number of properties and total assets trend has to be discussed to get a clear picture of the assets of the company. The financial year of 2011-2012, the company had 102 properties which were valued at 6, 564 million. The next year of 2012-2013 saw the number of properties increasing by one unit and the rise in asset value at 6,959 million. FY13-14 also witnessed two properties induction under the ambit of Ascendas Trust and the total worth of the assets being 7, 358 million. The year of 14-15, the number of properties went up from 105 to 107 and the total valuation of the assets being marked at 8, 160 million dollars. The last year of 2015-16 saw the maximum rise of investments and the increase in properties. The number of properties went up from 107 to 133 and the total asset value pegged at 9, 870 million dollars.

Strength Analysis:

1. Over 100 million dollars were expended for quality improvement and development of Assets, in case of interest rates rises or property prices plummet. The risks have been managed, and that is why the funds of 100m were invested to buffer the risks
2. The tenants of the properties are mostly MNC’s, which have the capability to stabilize the generation of rent and revenue.
3. The constant deliverance of Distribution per unit (DPU) and its consistency in figures of the DPU.

Weakness:

1. The industrial segments generated rental percentage, and figures are on a downward slide with the near possibility of rate hikes by the trust management.
2. There are certain Regulatory Impediments and fixtures which affect the company policy and its operations.
3. Adverse internal structure in the company resulting in inadequate levels of returns from operations..

Opportunities:

1. There are chances of future acquisitions from the very sponsors or the investors of the trust.
2. The results are most yields accretive in nature. The yield from the current year inspires wealth creation in the forthcoming period.

Threats to the business of Ascendas trust:

The rate hikes are comparatively faster than expected and anticipated. The rate hikes in the unit price per share may spurt short term selling of the shares, which may push down the average share price of Ascendas Real Estate Investment Trust (Lee, Lee and Chiang 2007).

The press release of 13 April 2016 mentioned that the financial result for the year ended 31 March 2016 would be released on 27 April 2016.  The notices of valuation of real assets were released on 27 April 2016. The notice provided the value of different properties as on31/03/2016. The valuation report also included the description of the property and it is important as it helps to ascertain the value of the properties that are provided in the balance sheet. In the press release of 28 April 2016, it is if the company is planning to issue “Series 007 note” on 11 May 2016. This will increase the cash available to the company. The available proceed will be helpful for refinancing loans, general corporate purpose and funding disbursement for investment. In the press release of May 18 2016, it is provided the disclosure in the change in the interest of the trust manager have been released. This disclosure is important because it affects the functioning of the business. In 3 June 2016, the notice of annual general meeting has been released and on the same date, the annual report of the company was released. The disclosure for change in director was issued on 28 June 2016. It is important as this also affects the functioning of the organization. The result of the ninth annual general meeting was released on 29 June 2016. These are all important press release related to the financial year 2015-16.

The company requires reevaluating the product pricing policy in order to mitigate the risks of low or negligible growth in terms of sales. Moreover, high quantum of interest payment followed by lack of cost cutting initiative undertaken by the company has to be resolved. Attracting newer sets of consumer with substantial changes in the promotional policy along with high degree of expenses in Research and Development expenditure can benefit the company towards improving its financial performance. Moreover, the company requires reducing the degree of leverage as its debt to equity ratio is highly unfavorable. The stagnation in returns coupled with the high amount of interest payment can lead the company towards bankruptcy. Thereby, through issuing of shares in case of fulfilling the requirements of additional capital the company will be able to mitigate the current levels of financial risk.

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