In a business update, CapitaLand Ascendas REIT’s (CLAR) manager said the REIT had completed acquisitions of two properties in Singapore for $296.7 million. They are 622 Toa Payoh Lorong 1, a six-storey high-tech property for $104.8 million; and 1 Buroh Lane, a Grade-A five-storey ramp-up cold storage logistics distribution centre for $191.9 million.
The Toa Payoh property has 21 years of land lease left; the net property income yield post-transaction costs works out at 6.8%. The property has a WALE of 4.5 years. If CLAR manages to keep the occupancy at 100%, the REIT would be able to recoup its initial investment of $191.9 million. 1 Buroh Lane’s NPI yield is 6.9% and the land lease is also for 21 years. its WALE is 7 years. So CLAR could recoup its investment in this property too if it keeps it fully occupied.
While the NPI yield makes sense given CLAR’s current cost of debt of 3.3%, the REIT has to refinance $660 million of debt this year. Despite having fixed rate debt at 77% of total debt, a 100 bps increase in interest rate on refinancing $660 million which matures this year is expected to have a pro forma impact of $6.6 million decline in distribution or 0.16 cents decline in DPU. In FY2022, CLAR’s DPU was 15.8 cents.
On April 20, CLAR announced the divestment of KA Place, for $35.4 million, at a premium of 219% to purchase price and 55% to recent valuation.
Nonetheless, the two acquisitions are likely to have driven up the aggregate leverage from 36.3% as at end-Dec 2022, to 38.3% as at March 31. Interestingly, CLAR is one of the few REITs that publishes its debt to equity (net assets) ratio which in 1Q2023 stood at 68.5%. Trailing 12-month ICR was at 4.5x.
CLAR maintains a high level of natural hedge of around 74% for its overseas investments, so as to minimise the effects of any adverse exchange rate fluctuations. Its Euro investments are fully hedged. If currencies such as the Australian dollar, greenback and sterling weaken by 15%, the overall impact to NAV is less than 3%. As at Dec 31, 2022, CLAR’s NAV was $2.30.
CLAR’s manager has consistently laid to rest concerns about its US portfolio. In 1Q2023, its occupancy dippied to 92.5% in 1Q2023 from 94% a quarter ago which the manager says was due to transitionary movement in Raleigh. Overall occupancy was flat q-o-q at 94.4%, while rental reversions were at 11.1% for the portfolio.
