Analysts are convinced these two new properties are positive for CLAR, thanks to the organic growth potential from higher rental rates to be more in line with current market prices.
The first property, 9 Tai Seng Drive, is a data centre with a total net lettable area (NLA) of 6,968 sq m and is 100% occupied, with a weighted average lease expiry (WALE) of 4.4 years. The purchase price of $455.2 million translates into a 7.2% net property income (NPI) yield.
The second property, 5 Science Park Drive, has a total NLA of 22,488 sq m and is part of the “Geneo” life sciences and innovation cluster in Singapore Science Park 1. The property is fully tenanted by e-commerce player Shopee, with a remaining WALE of 1.5 years.
At $245 million, the purchase price includes a $30 million deferred consideration payable in November 2026 and an initial NPI yield is 6.1%. Pro forma, the deal will help add 1.36% and 3.5%, respectively, to CLAR’s dividend and NAV. Unitholders will receive an advanced distribution of 6.479 cents per unit, to be paid on June 30.
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As noted by Lock Mun Yee and Li Jialin of CGS International (CGSI), the acquisitions will increase CLAR’s Singapore exposure to 67% of the enlarged portfolio AUM of $17.6 billion and deepen CLAR’s presence in Geneo in the Singapore Science Park 1 area.
With 9 Tai Seng Drive in the bag, CLAR’s Singapore data centre AUM will increase to more than $1 billion and overall data centre AUM will increase by 32.8% to $1.9 billion.
According to the CGSI analysts, citing CLAR’s management, there are opportunities for rental uplift upon lease renewal at both properties.
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The passing rent at 5 Science Park Drive is 15% below the current comparable market rent in the area and thus room to hike the rent when the lease expires in FY2026.
Also, the passing rates for 9 Tai Seng Drive are 30% below comparable market colocation rates and will likely enable CLAR to enjoy rental uplifts when renewing leases.
“In the longer run, CLAR indicated that there could be the possibility of expanding the existing IT capacity by converting the unutilised space into data halls, including higher power usage, subject to obtaining the relevant approvals from the authorities. This should improve asset returns, in our view,” say Lock and Li, who have kept their “add” call and $3.10 target price.
To help fund the deal, CLAR has issued new units at $2.47 each, raising $500 million. The offer was more than four times subscribed.
For now, Lock and Li are keeping their FY2025 to FY2027 DPU estimates unchanged pending completion of the transactions. “We continue to like CLAR for its diversified and resilient portfolio and healthy balance sheet. Management indicated that it would continue to focus on asset enhancement or redevelopment projects, as well as potential acquisitions in Singapore and Europe,” they state.
Re-rating catalysts include faster-than-expected global recovery and accretive new acquisitions. Downside risks include a protracted economic downturn that could adversely impact its ability to price rents for positive reversions.
In his separate note, Xavier Lee of Morningstar has similarly remained upbeat on CLAR. “The key highlight of both assets is the potential for organic growth via rental uplift. We think CLAR has paid a fair price for two high-quality assets with potential for organic growth,” says Lee.
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“The shares are undervalued and we like the trust’s well-diversified industrial portfolio. We expect CLAR to continue growing its DPU through lease management, asset enhancement initiatives, and capital recycling,” says Lee, who has kept his four-star rating and $2.90 fair value.
In its May 29 note, OCBC Investment Research, similarly maintains a positive view on the stock, given the potential for mid-to-long-term growth.
According to OCBC, CLAR sounded “confident” that Shopee, the key tenant of 5 Science Park Drive, will renew its lease after next November at about 15% higher. OCBC’s call is to “buy”, along with a fair value of $3.21.
Krishna Guha of Maybank Securities, similarly, remains positive on this stock. “While accretion is limited for the business park and WALEs are short, the assets in a future-proof sector enhance portfolio and growth potential,” says Guha, who has kept his “buy” call and $2.95 target price.
9 Tai Seng Drive / Photo: CLAR
