Analysts are remaining positive on CapitaLand Ascendas REIT (CLAR) as they view the counter to be a resilient industrial play and attractively valued compared to its peers.
The analysts’ views follow the REIT’s latest 3QFY2022 ended September business update, which saw portfolio occupancy come in at 94.5%.
The average portfolio rent reversion of leases renewed in 3QFY2022 and year-to-date was 5.4% and 8% respectively. And the REIT expects FY2022 to see a positive mid-single-digit range of rent reversions.
The REIT’s weighted average lease expiry (WALE) by gross revenue stood at 3.9 years while the weighted average lease term of new leases signed in 3QFY2022 was 5.4 years, having contributed 2.3% of the quarter’s total gross revenue.
See more: CapitaLand Ascendas REIT maintains steady portfolio occupancy rate of 94.5% for 3QFY2022
Following the REIT’s update, RHB Group Research is keeping its “buy” recommendation, but with a lower target price of $3.15 from $3.60 previously. The lower target price reflects analyst Vijay Natarajan’s move to factor in the sharp interest rate hikes.
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Nonetheless, he views CLAR as a resilient industrial play.
Following the latest 3QFY2022 results, Natarajan notes that the healthy operational numbers met his expectations. Occupancy and rents continue to trend in the right direction with the outlook remaining positive.
The REIT’s operational strength continues with portfolio occupancy increasing 0.5 percentage points (ppt) q-o-q or 2.8 ppt y-o-y to 94.5%, on the back of occupancy improvements for its assets in Australia and the UK/Europe, driven by increased demand for logistic assets.
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Portfolio rent reversion for 3QFY2022 came at 5.4%, which was lower than 12.3% in 2QFY2022, as all markets and all asset classes seeing positive rent reversion.
Its US portfolio was the star performer, notes the analyst, with logistics leases renewed during the quarter that saw a 60% rent growth and business space assets rent increasing 11% indicating its right positioning and continued market demand.
“In Singapore logistics assets saw a +15% rent reversion reinforcing our views of multi-year rerating for the logistics sector. CLAR also implemented higher service charges for its Singapore leases from October to mitigate rising utility charges and inflationary cost pressures,” says Natarajan.
Meanwhile, the REIT’s relatively healthy gearing also puts it in a good position to do selective deals like the two quality assets in Singapore which it acquired during the quarter.
During the quarter, the REIT acquired a cold storage logistic asset at 1 Buroh Lane, with a 7% net property income (NPI) yield and high tech campus Philipps APAC Centre (7.2% yield) taking its total acquisitions for the year to $520 million.
Singapore accounts for 61% of total assets followed by the US (15%), Australia (14%), and UK/Europe (10%).
“Management had earlier guided for $1.0 billion acquisition target per annum but we expect it to come below that level for the year. It has also commenced redevelopment at one of its US assets to convert it from an office space to a life sciences building, at an estimated capex outlay of US$40 million with an NPI yield post conversion at about 9.0%,” says Natarajan.
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On the other hand, the analyst likes that the REIT’s high debt hedge of 78% and the implementation of higher service charges to mitigate interest rate and utility impact.
Sharing similar sentiments, DBS Group Research is keeping its “buy” recommendation on CLAR, but is cutting the target price to $3.40 from $3.65, to factor in the higher borrowing costs and risk-free rate.
Despite that, analysts Dale Lai and Derek Tan view the counter as “attractively valued relative to other large-cap peers”. CLAR currently offers an attractive approximately 6.0% yield, which is among the highest compared to its other larger cap industrial Singapore REIT (S-REIT) peers.
Furthermore, the REIT has been proactive in carrying out asset enhancement initiatives (AEIs) and redevelopment of several older properties. Combined with its acquisitions over the past year, Lai and Tan expect CLAR to report about 3.0% growth in distribution per unit (DPU) in FY2022.
“We believe that investors have neglected CAREIT’s myriad of structural tailwinds from e-commerce, data centres, and office decentralisation, which would drive earnings and capital values higher in the longer term. Its proactive rejuvenation of its portfolio, which adds value to older properties and taps into unutilised plot ratios, will create a further upside to earnings,” says the analysts.
Meanwhile, Lai and Tan note that CLAR could tap its sponsor for an attractive pipeline of new economy properties, but there is significant value from the potential redevelopment of its science park assets. “The redevelopment of 1 Science Park Drive, together with its sponsor, paves the way for about $5.6 billion in gross development value to be unlocked from its assets at Science Parks 1 and 2,” notes the analysts.
As at 1.30pm, units in CLAR are trading at $2.62 or 1.1x FY2022 P/B with a dividend yield of 6.1%, according to RHB’s estimates.
