The team of analysts at OCBC Investment Research (OIR) are keeping “buy” on CapitaLand Ascendas REIT A17U (CLAR) at a raised fair value of $3.32 from $3.23 previously following the REIT’s 3QFY2024 ended Sept 30.
Similarly, the analysts at Maybank Securities and CGS International (CGSI) are keeping their “buy” and “add” calls at unchanged target prices of $3.10 and $3.23 respectively.
The OIR team writes in their Oct 28 report: “One standout from the business update was its continued robust rental reversions trend. This accelerated to 14.4% in 3QFY2024, versus 2QFY2024’s 11.7% improvement. This was contributed by all regions which had lease signings.”
In Singapore, CLAR’s rental reversions amounted to 12.2%, underpinned by its logistics properties and to a smaller extent, its industrial and data centres segment, while its business space and life sciences registered a mild rental uplift of 0.7% despite challenges in the market.
Meanwhile, rental reversions in the US during the quarter came in at 22.9%, thanks to its business space and life sciences properties. In Australia, rental reversions were at 14.9%, led by logistics properties at 52.3% and business space properties at 9.5%.
“CLAR maintained its FY2024 portfolio rental reversion guidance of ‘high single-digit range’, but this is conservative, in our view, as all three quarters of FY2024 delivered double-digit rental uplifts,” writes the team.
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On the other hand, the REIT’s portfolio occupancy softened for the fourth consecutive quarter, not including the strong signing rents achieved in the period. As at end Sept, portfolio occupancy stood at 92.1%, 1.0 percentage points (ppts) and 2.4 ppts lower q-o-q and y-o-y respectively.
The main drag came from Australia, as occupancy dipped 5.1 ppts q-o-q to 91.7%, due to a lease expiry at its logistics property in Sydney, which drove the property’s occupancy from 100% to 6.1%. CLAR is in discussions with a prospective tenant about leasing up the vacated space.
The US also showed a slight occupancy dip of 0.6 ppts q-o-q to 87.1%, while Singapore and the UK/Europe maintained their occupancy rates of 92.0% and 99.3% respectively.
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Post 3QFY2024, CLAR has announced the divestment of its 21 Jalan Buroh property in Singapore at a divestment price of $112.8 million, a significant premium of 93.2% and 67.1% to both the asset’s original purchase price of $58.4 million and valuation $67.5 million respectively.
During the period, the REIT’s aggregate leverage ratio increased from 37.8 % to 38.9% , while its weighted average all-in debt cost remained flat q-o-q at 3.7 %.
“80.2% of CLAR’s borrowings had been hedged, slightly lower than the preceding quarter’s 83.0%,” writes the team.
Potential catalysts noted by the OCBC analysts include stronger-than-expected recovery in industrial rents, accretive inorganic growth opportunities and the divestment of non-core assets at attractive valuations.
Conversely, investment risks include a slowdown in macroeconomic conditions which may dampen demand for industrial assets, spikes in interest rates which could raise borrowing costs and a depreciation of the Australian dollar (AUD), Euro, British pound (GBP) and US dollar (USD) against the Singapore dollar (SGD), which would impact distributions repatriated to Singapore.
Meanwhile, Maybank’s Krishna Guha sees that divestment proceeds from CLAR’s Jalan Buroh property may be used for capital expenditure (capex), debt repayment or top-ups.
“Data centre (DC) operator, GDS, is acquiring the asset after being one of the awardees of the combined 80 megawatt (MW) DC capacity given in July 2023. The steep premium may be reflective of property attributes,” writes Guha.
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He continues: “While we expect occupancies to fluctuate for business parks and the oversupplied warehouse micro-markets, CLAR’s diversified revenue profile, strong credit and capital recycling should stabilise its bottom line.”
Finally, CGSI analysts Lock Mun Yee and Natalie Ong have kept their FY2024 to FY2026 distribution per unit (DPU) estimates unchanged. “We continue to like CLAR for its diversified and resilient portfolio and healthy balance sheet.”
Potential catalysts noted by the pair include the completion of ongoing asset enhancement or redevelopment projects, which should boost contributions when completed between 1QFY2025 and 1QFY2026, as well as a faster-than-expected global recovery.
Units in CLAR closed 2 cents lower or 0.73% down at $2.72 on Oct 29.
