On capital management, aggregate leverage, weighted average financing cost and interest coverage ratio (ICR) came in at 30.7%, 3.46% and 6.6 times, doing better than the estimated 31%, 4.16% and 4.7 times respectively. This was thanks to a buffer built into its prospectus and a softer-than-expected interest rate environment, which allowed the REIT to lower its weighted average cost of borrowing and bring up its ICR.
Purpose-built workers’ accommodation (PBWA) portfolio occupancy stood at 97.6% while purpose-built student accommodation (PBSA) occupancy stood at 99.1%. The IPO forecasts for both portfolios were 95.8% and 97.3% respectively. The retention rate for PBWAs, a more accurate metric than weighted average lease expiry (WALE), given that leases are renewed on a one-year basis, stood at 79.2%. The dip was partly due to tenants relocating from existing blocks to the new 1,764-bed block at Westlite Toh Guan, which were not counted as renewals despite remaining within the same ecosystem.
“We are glad to report this bonus, if I may use the word, to our investors,” says Tony Bin, CEO of the REIT manager, at the REIT’s inaugural results briefing on Feb 24.
The outperformance was driven by a combination of higher rental rates from CAREIT’s PBWA portfolio, which grew by 5% y-o-y against a 3% forecast, and higher financial occupancy across its PBWA and PBSA portfolios. Lower financing costs were also a key driver, says CFO Teo Chee Kiat.
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Moving forward, the REIT’s strategy will remain unchanged from its IPO prospectus. “Our current investment mandate allows us to invest in income producing PBWAs, PBSAs and other accommodation assets globally except for Malaysia,” notes Bin. “Our key objective is to deliver attractive and sustainable returns through stable distributions and long term DPU and NAV (net asset value) growth.” CAREIT’s sponsor, Centurion Corporation, has separate plans for the country including a target to double its capacity there over the next five years.
The REIT manager also intends to keep its portfolio allocation unchanged from its prospectus, which includes the newly-acquired Epiisod Macquarie Park. Singapore PBWAs make up two thirds by asset value and NPI of 70%, making it predominantly a Singapore dollar (SGD) play, both by value and income.
On portfolio growth, Bin aims to look at organic possibilities first. “Our rental growth has been projected at 3% in our prospectus, and we will study with the property manager what more we can do to bring incremental value to justify growth at a slightly higher rate,” he says.
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The REIT is also assessing asset enhancement initiatives (AEIs) and redevelopments, as well as new acquisitions. However, with the REIT’s development risk capped at 10% of deposited property, greenfield developments are more likely to fall within its sponsor’s purview, though the REIT retains a right of first refusal (ROFR) and will evaluate any acquisition on price and suitability.
The REIT will also seek to maintain a prudent capital and risk management strategy. “To grow, we need to take some risks, especially in diversifying to new markets or new geographies,” says Bin. “So a balance between equity and debt, different sources of bank debt and capital market products, and given that the real estate is largely debt driven, interest rate management needs to be watched carefully, as it is for FX (foreign exchange) when we cross outside of Singapore.”
DBS keeps ‘buy’ call, TP under review
DBS Group Research’s Geraldine Wong has maintained her “buy” call as the REIT’s DPU and distributable income delivered a “convincing” beat, with overall results coming in slightly above her estimates.
“CAREIT’s first set of results since listing serve as an early beat, capturing sector tailwinds faster than expected,” Wong writes. “The magnitude of the beat paves way for a sector-high DPU growth in FY2026, with low interest rates partially locked in and occupancy scaling up faster than expected.”
CAREIT also delivered on the growth of its beds earlier than expected given the early commencement of its Mandai expanded capacity. The REIT’s build-up of its Westlite Ubi carpark space, which is tipped to be completed by the end of 2027, was also earlier than anticipated.
Upon the completion of these developments, Wong sees a 1.5% accretion to CAREIT’s FY2028 DPU, which she has not priced in yet.
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“CAREIT continue to feature as our top pick within the mid-cap space, with industry leading DPU growth, backed by a Singapore-centric portfolio,” she says.
“We believe that share price is awaiting to catch the next wave of growth with EQDP (Equity Market Development Programme) fund in flow and potential EPRA NAREIT indexation post its first annual report,” she adds.
Wong’s current target price of $1.30 is “under review” following the beat.
Units in CAREIT closed 2 cents lower or 1.74% down at $1.13 on Feb 24.
