Following CapitaLand Ascendas REIT A17U (CLAR)’s 1HFY2024 results ended June, analysts from Maybank Securities, RHB Bank Singapore and OCBC Investment Research (OIR) are keeping their “buy” calls with an unchanged target price of $2.90, $3.20 and $3.23 respectively.
Krishna Guha from Maybank says “all in, a steady report card” for the REIT.
CLAR’s 1HFY2024 distribution per unit of 7.52 cents was 2.5% lower y-o-y but 1.1% higher h-o-h, due to higher finance expense and an enlarged number of units.
The REIT’s 1H revenue and net property income grew 7.2% and 3.9% y-o-y, respectively, due to acquisitions and contributions from newly completed properties.
Guha says that the REIT’s portfolio occupancy was 93.1%, and occupancy was stable across geographies except the US where it fell a couple of percentage points due to expiries in single tenanted business parks. Meanwhile, rent reversion was higher 13.4% for 1H, led by logistics.
“That said, management noted that industrial and data centres (DC) in its portfolio are new growth centres while logistics is entering a high but mature growth phase,” the analyst says. “Management raised rent reversion guidance for the full year to high single-digit.”
He adds that the REIT’s financial metrics are stable for this 1HFY2024. Gearing was stable at 37.8%, borrowing cost at 3.7% was 20 basis points higher h-o-h but stable q-o-q, coverage ratio inched down to 3.5x (3.6x in 1Q2024), and natural hedge ratio is maintained at 76%, Guha notes.
This quarter, the REIT announced new asset enhancement plans for Aperia, but no capex plans for UK DC have been announced as CLAR is securing power for the facility, the analyst highlights. Meanwhile, the REIT has not guided for vacant US business parks.
“While we expect frictional occupancies in the US and SG business parks, diversified revenue profile and strong credit should stabilise the bottom line,” says Guha, who maintains his estimates, rating and target price for the REIT.
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
Likewise, Vijay Natarajan from RHB says that the REIT’s near-term focus is likely to be on asset enhancements with acquisitions and divestments being more opportunistic.
He notes that the assets in Changi Business Park have hit an inflection point — ONE@Changi City will welcome Singapore Airlines C6L as a new tenant in 2Q2025, and the REIT notes that authorities are more receptive to the idea of change of usage of its assets in the area.
Meanwhile, CLAR is in discussion with the authorities in the UK for data centre assets in Welwyn Garden City. Natarajan highlights that with the new UK government planning to boost data centre infrastructure, he sees good potential to generate higher returns from the asset.
However, the REIT’s financing costs rose about 20 basis points and is likely to be maintained at the same level for the full year. About 83% of its debt is hedged, the analyst notes.
Natarajan’s target price is a dividend discount model based one, which comes in unchanged at $3.20.
Likewise, OIR's research team says that although CLAR has a sizeable debt headroom, management appears to be focused on asset enhancement initiatives (AEIs) and redevelopment projects to improve its portfolio, as there are potential opportunities for the conversion of land use, including to data centres.
The analysts note some risks that the REIT could face, such as the possible dampening of demand for industrial assets in the event of a slowdown in marcoeconomic conditions; an increase cost of borrowing in case of spike in interest rates; and depreciation of foreign currencies against the Singapore dollar.
Because the REIT's results for the 1HFY2024 came in at OIR's expectations, and it has accretive inorganic growth opportunities and divested non-core assets at attractive valuations, the analysts have kept their "buy" call with an unchanged target price.
As at 11.36am, units in CLAR are trading 7 cents lower or 2.52% down at $2.71.
