Date of Report: October 25, 2024
Broker: CGS International Securities
Overview and Market Position
CapitaLand Ascendas REIT (CLAR) remains a robust player in the Singapore REIT landscape, with a well-diversified portfolio across industrial, business space, and logistics properties. The report reiterates an “Add” rating for CLAR, with a stable target price of S$3.23, emphasizing the REIT’s resilience and ongoing efforts to enhance portfolio value.
Portfolio Performance in Q3 2024
- Occupancy Rates: Portfolio occupancy declined by 1 percentage point quarter-over-quarter (qoq) to 92.1%, driven by lease expirations in Sydney and lower occupancy in Raleigh, USA.
- Rental Reversions: Strong rental reversions across markets, with an average of +14.4% in Q3. Singapore operations contributed notably to positive rental trends.
Singapore Portfolio Highlights
- Occupancy and Rental Reversions: Singapore maintained a steady 92% occupancy rate. Rental reversions were positive at +12.2%, with particular strength in logistics (+31.7%), industrial, and data center segments (+9.6%).
- Lease Expirations and Guidance: CLAR has a remaining 2.1% and 24.1% of leases due for re-contracting in Q4 2024 and FY2025, respectively. Management retains a high single-digit rental reversion target for FY24.
- Property Sales and Redevelopment: In October 2024, CLAR sold a ramp-up warehouse for S$112.8 million, achieving a 67.1% premium on valuation. The REIT is also engaged in three active redevelopment projects in Singapore, collectively valued at S$543.6 million, with further repositioning opportunities under consideration.
Australia and US Operations
- Australia: Occupancy dipped by 5 percentage points to 91.7%, attributed to a lease expiration in Sydney. Discussions are underway with potential tenants. The Australian portfolio achieved +14.9% rent reversion, bolstered by a 52.3% increase within its logistics properties.
- US: Occupancy in the US dropped slightly by 0.6 percentage points qoq to 87%, influenced by reduced take-up in Raleigh. However, the business and life sciences segments saw a healthy +22.9% rent reversion. Around 10.3% of US leases are up for renewal in FY25, primarily in San Francisco’s business and life sciences sector.
Financial Performance and Projections
- Debt and Leverage: Aggregate leverage rose from 37.8% in Q2 to 38.9% in Q3. Average funding costs held steady at 3.7%, with 80.2% of the REIT’s debt on fixed rates as of Q3 2024.
- Distributable Profit and Dividends: The REIT’s FY24-26F DPU estimates remain unchanged, with consistent dividend payouts projected for the coming years, supported by a stable and diversified portfolio.
- Catalysts and Risks: Potential growth drivers include the completion of redevelopment projects between Q1 2025 and Q1 2026 and prospects of new acquisitions. Economic downturns present downside risks, potentially impacting CLAR’s rent pricing abilities.
ESG and Sustainability Initiatives
- ESG Ranking: CLAR holds an LSEG ESG combined score of B-, with high ratings in ESG controversies (A+) and environmental innovation (A-). It aims to enhance its sustainability framework through CapitaLand’s 2030 Sustainability Master Plan.
- Renewable Energy and Green Certifications: CLAR targets 100% renewable energy for properties within Singapore Science Park I by 2025 and seeks to maintain green certifications for its portfolio by 2030. By the end of 2023, 46% of its portfolio (by gross floor area) was green-certified.
Investor Recommendations and Outlook
The report underscores CLAR’s resilience and growth potential, driven by strategic redevelopments and strong performance across core markets. The REIT’s diversified assets, favorable ESG ratings, and proactive management approach support its “Add” rating with an optimistic outlook for sustained long-term value.
