Analysts mostly keep estimates on CLAR after 1QFY2024 update

Meanwhile, Maybank Securities has kept its “hold” call at a lower target price of $2.65 from $2.75 previously.

RHB analyst Vijay Natarajan is positive on CLAR’s update as it showed continued momentum in rent growth offset by higher vacancies.

In his April 23 report, the analyst notes that CLAR’s rent reversion of 16.9% in the first quarter indicates a “continued strong demand” for industrial assets.

“[CLAR’s] Singapore portfolio remains a key growth driver, registering a healthy double-digit (16%) rent reversion during the quarter led by the logistics segment which saw a stellar 62% increase in renewal rates, highlighting the strong market rent growth over the last few years,” he writes.

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Although management has maintained its guidance for a mid-single-digit rent reversion, Natarajan sees room for an “upside surprise” to “potentially low” double-digit levels from positive demand supply dynamics and tenant receptiveness amid a high inflationary environment. 

In its update, CLAR reported a slight dip in portfolio occupancy of 92.3%, 0.9 percentage points (ppts) lower q-o-q. This mainly came from the expiry of a single tenant in its Sydney logistics asset and lower occupancy at a logistics property in the US.

However, the analyst isn’t too worried, seeing that the “positive demand-supply dynamics” for the logistics sector means that the spaces are likely to be backfilled in the coming quarters.

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On the decline in its UK portfolio occupancy, Natarajan notes that the REIT manager is evaluating redevelopment plans for this asset, with the potential to significantly increase power capacity to attract larger tenants, although this would come with significant upfront capital expenditure (capex).

As at March 31, the REIT’s gearing stood at a “modest” 38.3%. As such, the analyst believes that any acquisitions in the near-term are likely to be more opportunistic and bite-sized in the $50 million to $200 million range.

During the 1QFY2024, CLAR completed the divestment of three Australian assets, with more divestments likely to happen this year, says Natarajan.

“[CLAR’s] near-term focus should be on asset redevelopment while acquisition pace could be slower amid recent interest rate volatility and rising interest cost pressure,” he writes.

Meanwhile, CGS analysts Lock Mun Yee and Natalie Ong remain upbeat on CLAR’s prospects as its rental reversions continue to stay strong during the 1QFY2024.

The CGS analysts also continue to like CLAR for its diversified and resilient portfolio and healthy balance sheet, and as such, have kept their FY2024 to FY2026 distribution per unit (DPU) estimates unchanged. 

The team of analysts at DBS also like CLAR’s “sustained strong positive rental reversions”.

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Despite its “slight concern” about the dip in occupancy, the team highlights that this was mainly due to non-renewals of single tenants in each market, rather than a widespread vacating of properties across the portfolio.

“Separately, uncertainties surrounding interest rates and geopolitical tensions have led to tenants delaying expansion plans and taking longer to commit to leases,” the team adds.

It writes: “With CLAR's well-diversified portfolio and proactive management of assets through asset enhancement initiatives (AEI)s, redevelopments, and capital recycling, we remain confident that they will effectively backfill these vacancies and maintain a relatively healthy overall portfolio occupancy, along with sustained strong positive rental reversions.”

Based on the team’s forecasts, CLAR is currently trading at a “very attractive” forward yield of 6.0%.

Citi analyst Brandon Lee, on the other hand, sees a “mixed quarter” for CLAR, with its strong positive rent reversions offset by a portfolio-wide fall in occupancies.

“[CLAR’s] latest gearing of 38.3% implies [some] $0.5 billion of debt headroom before hitting 40%,” he adds. “We expect the group to continue exploring acquisitions (average of $1.2 billion a year from FY2019 to FY2023) with potential slowdown in earnings growth from weaker occupancies and higher debt cost, though renewed concerns over timing of interest cuts could make it more challenging, in our view.”

As at Lee’s report on April 23 (Singapore time), CLAR’s unit price, which fell by 16% year-to-date (ytd), has underperformed the wider Singapore REITs (S-REITs) sector’s 14% decline over the same period. However, he is keeping his “buy” call on valuations at 1.1 times P/B and 5.9% and 6.0% yields for FY2024 and FY2025 respectively.

Maybank analyst Krishna Guha is “staying on the sidelines” for CLAR as he remains neutral on the REIT.

“CLAR’s 1QFY2024 business update reflects a mixed trend for the company. Midteens reversion, led by logistics in Singapore, was offset by a broad-based decline in occupancy rate,” he notes.

While guidance for reversions remained unchanged, he points out that the REIT’s debt metrics were sequentially weaker with higher gearing and borrowing costs as well as a lower coverage ratio.

“While CLAR has an A-rated credit and a portfolio exposed to high-end manufacturing and research and development (R&D), a weaker operating trend and limited upside keep us on ‘hold’,” writes Guha.

In addition to his lowered target price, Guha has also lowered his estimates by 1% to 2% factoring in lower revenue and higher borrowing costs. His cost of equity, however, remains unchanged given the volatile risk-free rate.

“While we like CLAR’s defensive attributes, we think risk-reward is balanced at [its] current valuation (5.7% FY2024 yield),” he says.

As at 2.18 pm, units in CLAR are trading at four cents higher or 1.57% up at $2.59.