CapitaLand Ascendas REIT (CLAR) A17U proposed acquisition of facilities in Singapore and Europe reinforces its dominant position in the business space and life sciences sectors, says analyst Vijay Natarajan of RHB Group Research.
In his report dated May 16, Natarajan maintains his “buy” call on CLAR at an unchanged target price of $3.25, which represents a 13% upside and 6% yield against the last traded price of $2.88.
The analyst notes that CLAR’s proposed acquisition of The Shugart, Seagate’s Singapore headquarters, is positive as it has modern specifications, a good location, and long lease term. The acquisition is priced at $218 million, about 5% discount to the latest valuation.
The eight-year-old modern specification asset located in the prime one-north cluster is mainly used for research and developmental purposes and has a balance 20-year lease.
“Initial net property income (NPI) yield is an attractive 8.3% (post-transaction cost: 7.8%), i.e. slightly higher than recent transactions and indicating a slight softening in pricing expectations in our view amid the rising interest rate hurdles.” Natarajan says.
Additionally, The Shugart comes with a long 10-year master lease with an option to extend another 10 years, and a built-in annual escalation of 2.5%.
See also: CapitaLand Ascendas REIT to acquire Seagate's The Shugart in one-north for $218.2 mil
“Post transaction, business parks will account for [around] 49% of CLAR’s portfolio with prime one-north cluster assets representing 13% of total assets under management. This acquisition is slated for completion by 2Q2023.” says the analyst.
Meanwhile, CLAR is also evaluating a potential European acquisition located in one of the continent’s “key gateway cities”, and will be in its existing asset class of logistics and data centres.
The analyst notes that the acquisition is currently in an advanced due diligence stage, and expects the asset value to be in the range of around $200 million with an initial NPI yield of more than 7%.
See also: RHB initiates coverage on CSE Global with ‘buy’ call with TP of 58 cents
CLAR has also announced its plan to redevelop its existing cargo-lift logistics asset in Singapore into a modern ramp-up warehouse facility by maximising the asset’s plot ratio. Natarajan estimates the yield on cost for the redevelopment to be [around] 7.5% to 8.5%
To fund the above mentioned projects and debt repayments for the acquisitions, CLAR intends to raise gross proceeds of $450.0 million through a proposed private placement of new units within the REIT. The number of new units was unspecified.
The units will be placed among institutional and other investors at an issue price that ranges from $2.713 to $2.769 per unit.
The analyst notes that while equity fundraising in the current challenging market may act as a “slight overhang on CLAR’s share price”, he believes that it helps in better positioning its balance sheet well with an overall lower gearing of 37.6%.
The REIT is also actively looking at divestments to recycle and optimise its capital.
CLAR’s environmental, social and governance (ESG) score is four notches above country median score, which has resulted in the analyst applying an 8% ESG premium.
“We fine-tune our FY2023 to FY2025 distribution per unit (DPU) by -2% to 1%, factoring in placement and timing delays from income contributions.” says Natarajan.
As at 3.04pm, shares in CLAR are trading flat at $2.80.
