The manager of CapitaLand Ascendas REIT (CLAR) on Feb 1 announced its FY2023 ended December 2023 results, which saw distribution per unit (DPU) come in at 15.16 cents, some 4.0% lower y-o-y. The total amount available for distribution declined by 1.4% y-o-y to $654.4 million mainly due to higher interest expenses as a result of the high interest rate environment.
Gross revenue for FY2023 rose by 9.4% y-o-y to $1.48 billion. Net property income (NPI) rose by 5.6% y-o-y to $1.02 billion.
Portfolio occupancy remained high at 94.2%, while rental reversion was positive at 13.4% for leases renewed in multi-tenant buildings during 2023. The portfolio’s weighted average lease expiry (WALE) period stood at 3.9 years and about 14.6% of CLAR’s gross rental income will be due for renewal in FY2024.
See more: CapitaLand Ascendas REIT DPU down 4% to 15.16 cents for FY2023
Following the announcement, analyst Brandon Lee of Citi Research is keeping a “buy” call on CLAR with a target price of $3.02.
The way Lee sees it, the latest results, though a slight miss, highlighted the strength of the REIT’s domestic portfolio (64% of total) evidenced by strong rent reversions, healthy occupancy and resilient valuations, though mitigated by weakness in the US (in terms of occupancy and valuation; especially business space; albeit just 12% exposure).
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Lee also views the management’s openness to undertaking more overseas development projects (including a proposed data centre in UK) as a positive move, given higher yields.
“While we think any potential acquisitions (likely third-party) still require partial equity given debt headroom of just about $0.6 billion before hitting 40%, though at current 5.5% yield and 1.25x P/B, we believe partial DPU accretion is still attainable,” says Lee, who appreciates that CLAR has been performing in-line with Singapore REITs (S-REITs) ytd.
Overall, Lee sees greater value in Mapletree Logistics Trust M44U (MLT) and Frasers Logistics & Commercial Trust BUOU (FLCT).
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Meanwhile, DBS Group Research shares the same sentiment with a maintained “buy” call, but lower target price of $3.25 from $3.40 previously.
Analysts Dale Lai and Derek Tan note that FY2023 DPU was below projections, thanks to an enlarged unit base and higher debt cost, but FY2023 posted double-digit positive rental reversions of 13.4%, which they expect to continue and trend up in FY2024.
The REIT’s diversified portfolio of future ready assets valued at about $16.5 billion is noteworthy. The portfolio spans across Singapore, US, Australia, and UK/Europe. Its portfolio of future ready assets are in the business space and life sciences, logistics, industrial and data centre segments.
“Having a portfolio of diversified property types spread out across several developed markets, enables CLAR to tap on structural trends while diversifying concentration risks as demonstrated by its resilience throughout the Covid-19 pandemic,” say the DBS analysts.
Meanwhile, ongoing asset enhancement initiatives (AEI) and asset conversions will gradually come online over the next two years. Lai and Tan expect this to drive earnings as they are gradually completed and delivered. In addition to these initiatives to drive higher returns, CLAR continues to acquire accretively and recycle capital from lower-yielding assets into higher yielding opportunities.
Tapping on its sponsor’s pipeline and through its extensive network, CLAR has demonstrated its ability to continuously source for accretive acquisitions to complement its existing portfolio. Its sponsor’s development capabilities also provide CLAR with the opportunity to undertake development and redevelopment projects that usually generate higher returns and superior revaluation gains.
On the other hand, RHB Group Research has maintained its "buy" call and $3.20 target price on the REIT, as analyst Vijay Natarajan expects a resilient 2024 ahead for CLAR.
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While the recent results' DPU was also a slight miss, Natarajan notes that operational al metrics continue to show healthy improvement – in particular, strong rental growth is expected to continue in FY2024.
"The valuation of its overseas (in the US) portfolio came in slightly below expectations, but is expected to stabilise and possibly improve this year. Inorganic growth is expected to pick up, with more acquisitions, divestments and asset redevelopments anticipated this year," he adds.
The analyst is expecting rental growth to continue in FY2024 and sees room for outperformance, with demand remaining favourable and tenants generally being more receptive amid this current inflationary environment. Management had guided for a mid-single-digit rental reversion this year. The portfolio occupancy rate, however, dipped by 0.3 percentage points (ppt) q-o-q to 94.2%, mainly on the back of a decline in its occupancy rate at its US assets (in Portland), from a tenant vacating the premises. "We expect this metric to be stable and slightly improve this year," says Natarajan.
The pace of asset acquisitions could pick up in 2H2024 with interest rates peaking and rate cuts expected later this year, leading to more yieldaccretive opportunites, reckons Natarajan.
CGS-CIMB Research too has kept its "add" call and $3.06 target price on CLAR. Analysts Lock Mun Yee and Natalie Ong continue to like CLAR for its diversified and resilient portfolio and healthy balance sheet. The two analysts note that the REIT's operations are robust, with strong rental uplift and high occupancies.
As at 10.22am, units in CLAR are trading 2.8% lower at $2.79.
