Analysts are keeping their “buy” and "add" calls on CapitaLand Ascendas REIT’s (CLAR) A17U following the strong rental reversion it recorded in its 1QFY2023 ended March.
During the quarter, CLAR’s rent reversion improved to 11.1% versus the 8% recorded in 4QFY2022 ended December. Three of its four geographies recorded double-digit figures, namely Australia at 14.3%, US at 11.3% and Singapore at 11.2%.
In Singapore, the trust’s logistics assets saw the highest rent reversion of 23.6%, highlighting the continued favourable demand and supply dynamics of the sector, says RHB Bank Singapore’s Vijay Natarajan.
“While rent reversions are likely to moderate in the coming quarters on the back of increased supply and the economic slowdown, it is still expected to remain at a healthy mid-single digit for the full year,” he adds.
CLAR’s Singapore occupancy was stable at 92.3%. CGS-CIMB Research’s Lock Mun Yee and Natalie Ong points out that the REIT has 16.7% and 16.6% of its leases in Singapore expiring for the rest of FY2023 and FY2024 respectively — mainly business and life sciences as well as industrial and data centre spaces.
Meanwhile, CLAR’s gearing rose 1.9% percentage points q-o-q to 38.2% in 1QFY2023 as a result of two domestic acquisitions — Philips APAC Center in January and 1 Buroh Lane in February. This implies about $540 million of debt headroom before hitting 40%, Citi Investment Research’s Brandon Lee highlights.
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He adds that the REIT’s debt cost increased 80 basis points q-o-q to 3.3%, while fixed rate-debt composition fell 2.4 percentage points to 77%, suggesting that every 50 basis points hike in interest rate will result in DPU decline of 1.1%.
Moving forward, the analysts are anticipating more divestments in Singapore. Last month, CLAR announced the divestment of KA Place, a high specification industrial asset for $35.4 million. This was at a 34% premium based on net proceeds to its end-December valuation, Natarajan notes.
The REIT also has $617 million worth of ongoing asset enhancement initiatives or redevelopment projects, of which 65% are in Singapore. Lock and Ong believe progressive completion of these activities from 4Q2023 to 2Q2026 should further drive CLAR’s portfolio returns in the medium term.
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Other projects, such as Sydney business park MQX4 is expected to be completed by 2QFY2023 while the conversion of Lusk Boulevard in San Diego to a life sciences building is expected to be completed by the end of the year. Upon completion, both assets are estimated to add about $10 million in net property income and should have a positive impact on the valuation of the portfolios, says Natarajan.
As the REIT remains a defensive shelter amid the current market volatility, Natarajan has raised his target price to $3.25 from $3.15 previously. Both CGS-CIMB and Citi maintained their target prices at $3.06.
Units in CLAR are trading at an unchanged $2.81 as at 1.32pm.
