Following the release of CapitaLand Ascendas REIT ’s (CLAR) results for the FY2024 ended Dec 31, 2024, RHB Bank Singapore (RHB) is keeping its “buy” call at an unchanged target price (TP) of $3.20, while Morningstar Equity Research has a four-star rating with a fair value (FV) estimate of $2.90.
On the other hand, while OCBC Investment Research (OIR) has similarly maintained its “buy” call, the bank has reduced its FV to $3.30 from $3.32 previously.
RHB analyst Vijay Natarajan notes that the REIT’s FY2024 and 2HFY2024 financials were in line, with dividend per unit (DPU) back in “growth mode”.
He writes in his Feb 10 report: “Portfolio occupancy was up q-o-q while rent reversion remained strong in low double digits with stable valuation. Financing costs too are near the peak.”
Overall, CLAR is one of Natarajan’s top industrial Singapore REIT (S-REITs) picks.
“Key briefing takeaways were CLAR’s sharpened focus on asset development and redevelopments/enhancements. We are positive on this move as we expect it to unlock significant untapped value, enhance returns and diversify earnings,” writes the analyst.
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The REIT has a planned redevelopment of its LogisHub @ Clementi asset, with the redevelopment expected to transform the asset from a cargo lift warehouse to a modern seven-storey ramp-up asset with a cold storage facility.
The move is also expected to nearly double the gross floor area (GFA) of the asset from plot ratio intensification and to achieve a high green rating for the asset. The estimated $136.2 million redevelopment is expected to commence at the end of 2025 and complete by 1QFY2028, with return on investment (ROI) expected to be in the high-single digits.
“The move follows FY2024 forward purchases of two logistics assets in the US for around $250 million, which are expected to offer a stabilised net property income (NPI) yield of 7.6%, higher than its existing portfolio. CLAR guided for potential $1.5 billion of redevelopments over three years.”
Meanwhile, Natarajan notes that there is potential to unlock value from CLAR’s data centre assets.
In particular, Telepark, valued at around $270 million, is likely to be vacated by April.
The REIT’s management highlighted the asset’s attractive location next to Tampines MRT as well as that the underlying commercial land lease provides good redevelopment potential for the asset, including possibly divesting it.
“The remaining lease expiries are staggered till 2030, posing limited downside risk to near-term DPU. Welwyn Garden City, UK has been decommissioned in June 2024 and CLAR is currently working on securing a new tenant as well as regulatory approvals for the development of a 60 megawatt (MW) data centre.”
In the FY2024, CLAR’s rent reversion of 11.6% with positive double-digit rent growth was seen across all markets. For FY2025, the REIT has guided for positive mid-single digit reversion which Natarajan believes is conservative.
Financing costs also remained stable q-o-q at 3.7%, with the analyst anticipating another 10 to 20 basis point (bps) rise in FY2025 before tapering off.
Natarajan continues: “Portfolio valuation was stable y-o-y as weakness in the US and Australia were offset by gains from Singapore. Utility costs are expected to be lower and could slightly result in higher NPI margin.”
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Meanwhile, Morningstar’s Lee writes in his Feb 6 report that CLAR’s 2HFY2024 performance was in-line with his expectations.
While the REIT’s portfolio occupancy rate improved by 0.7 percentage points (ppts) q-o-q to 92.8% as of end-2024, Lee adds that the trust also delivered on its positive rental reversion target, recording an 11.6% rental reversion for 2024.
He adds: “After rolling our model, we lowered our distribution per unit estimates for FY2025 to FY2027 by 2.8% to 7.8% after adjusting our interest cost assumptions for a higher-for-longer interest-rate environment. The trust continues to appear undervalued and trades at an attractive 2025 distribution yield of 5.8%.”
The analyst is also positive about CLAR’s strategy to grow its logistics portfolio in the US with its acquisition of Summerville Logistics Center and DHL Indianapolis for $248 million.
In particular, he notes that DHL Indianapolis has an attractive NPI yield of 7.4%. Lee writes: “For DHL Indianapolis, we appreciate that the asset has been leased to DHL, a global leader in the logistics industry, for 11 years with a built-in rent escalation of 3.5% per year, providing organic rental growth throughout the lease term.”
As for Summerville Logistics Center, the asset is still under construction and management estimates achieving a stabilised NPI yield of 7.2% when it is completed and substantially leased out. CLAR is targeting $1.5 billion for redevelopment projects in the next two to three years to refresh and reposition its portfolio.
“We believe management’s plans to renovate and redevelop its existing assets should help create value for the trust during periods when the acquisition environment is challenging,” writes Lee.
With that, Lee has assigned a four-star rating on the stock, which according to Morningstar’s definition indicates that an “appreciation beyond a fair risk-adjusted return is likely” for investors.
Finally, the team of analysts at OIR note that CLAR’s rental reversions for the 4QFY2024 lost momentum and came in at 8.6%, but this was understandable as the renewal of leases signed during the pandemic at lower rates were now mostly finished.
They write: “Looking ahead, CLAR guided for its FY2025 rental reversions to be in the positive mid-single digit range, which we believe is achievable.”
“There are some risks ahead, as Singtel, its largest tenant by monthly gross revenue, has indicated that it will not be renewing its lease which is expiring in one to two months’ time for the data centre property at Tampines. CLAR may opt to convert the data centre to a commercial property given its location. Another key tenant may also not renew its lease at Galaxis in the one-north precinct, in our view,” writes the team.
In the FY2024, the REIT’s aggregate leverage ratio declined 38.9 % as at Sep 30, 2024 to 37.7 %, while its weighted average all-in debt cost was flat q-o-q at 3.7 %. The team notes that management expects this to increase in FY2025 but to stay below 4%.
They add: “82.7% of CLAR’s borrowings had been hedged, which will provide a decent buffer in a higher for longer interest rate environment. Given the challenges in sourcing for acquisitions against the backdrop of higher borrowing costs, CLAR has focused its resources on development, redevelopment and asset enhancement initiatives to improve the returns of its existing portfolio.”
The REIT will also target $300 million to $400 million of divestments to lighten up its balance sheet for potential portfolio acquisitions. As such, the team at OIR has raised its FY2025 DPU forecast by 1.7%, as well as rolling forward their valuation and factoring in a higher cost of equity assumption of 6.6%.
Units in CLAR closed 5 cents lower or 1.99% down at $2.46 on Feb 10.
