Excerpts from UOBKayHian report
CapitaLand Ascendas REIT (SGX: A17U)
- CapitaLand Ascendas REIT clocked broad-based positive rental reversion of 11.7% in 2Q24 (Singapore: +11.9%, Australia: +7.7%, UK/Europe: +10.1% and US: +11.9%).
- Portfolio occupancy eased 0.2ppt qoq to 93.1%. CLAR has a resilient balance sheet with average debt maturity at 3.7 years. Management plans to scale up in new economy assets such as data centres.
- CLAR provides a resilient 2024 distribution yield of 6.0% (MINT: 6.0%).
Maintain BUY with a target price of S$3.44.
Generating steady growth
CapitaLand Ascendas REIT (CLAR) reported DPU of 7.524 S cents for 1H24 (-2.5% yoy), which is in line with our expectationsGross revenue increased 7.2% yoy in 1H24, driven by acquisitions completed in 2023 and newly completed properties.
NPI grew 3.9% yoy, while NPI margin narrowed 2.3ppt yoy to 68.6%. Finance costs increased 16.3% yoy.
Maintaining positive rental reversion
CLAR achieved positive rental reversion of 11.7% for leases that were renewed in multi-tenant buildings in 2Q24 (Singapore: +11.9%, Australia: +7.7%, UK/Europe: +10.1% and US: +11.9%).
Management expects average rental reversion at positive high single-digit for 2024.
Portfolio occupancy eased 0.2ppt qoq to 93.1%
Occupancy for Singapore eased slightly by 0.3ppt qoq to 92.0% in 2Q24 due to lower occupancy for the logistics property at 40 Penjuru Lane.
Occupancy for the US eased 1.8ppt qoq to 87.7% due to the expiration of leases for two single-tenant properties at Lackman Business Centre 4 in Kansas City (logistics) and 9405 Gemini in Portland (business space).
Occupancy for Australia was stable at 96.8% with higher occupancy for business space properties.
Prudent capital management
Aggregate leverage was stable at 37.8% as of Jun 24. 83% of CLAR’s borrowings are on fixed interest rates or hedged to fixed rates. Its weighted average all-in cost of debt eased 0.1ppt qoq to 3.7% in 2Q24. Cost of debt should maintain at current levels till end-24.
Well-spread debt maturity profile
CLAR obtained a S$300m seven-year green loan and issued S$300m in 10-year green bonds to refinance existing borrowings in 1H24. Thus, the average debt maturity has lengthened to 3.7 years.
Generating steady growth from diversified portfolio
Management plans to recycle assets in Singapore and reposition toward technology, life science and logistics properties. Properties in UK/Europe are able to provide stable contributions due to long WALE of 6.0 years.
Demand for logistics properties in Australia has normalised with leasing downtime reverting back to the usual 6-12 months. Occupancy for business parks in the US could slip lower as the work-from-home arrangement is quite entrenched.
Rejuvenating portfolio in Singapore
CLAR has six ongoing redevelopments (1 Science Park Drive (34% stake), 27 IBP and 5 Toh Guan Road East) and AEIs (80 Bendemeer Road,
Aperia and ONE@Changi City) worth a total of S$573m. It has commenced two new AEIs in Singapore with a total investment of S$24.2m:
- Aperia (S$22.7m). The drop-off point and entrances will be upgraded to enhance tenants’ and visitors’ arrival experience. The retail mall layout and tenant mix will be enhanced to increase footfall.
- ONE@Changi City (S$1.5m). The interior of the South Tower lobby will be refurbished and modernised to create a welcoming waiting area and collaborative discussion space for tenants and visitors.
Valuation/Recommendation
Maintain BUY. Our target price of S$3.44 is based on DDM (cost of equity: 7.0%, terminal growth: 2.5%). Resiliency and growth from business parks, hi-tech buildings, life sciences, logistics and data centre segments. Contributions from development projects and AEIs.
You can find the full report here and the company website here.
