Report Date: October 27, 2024
Broker: Maybank Research Pte Ltd

Financial Overview and Stability

CapitaLand Ascendas REIT (CLAR) reported steady financial metrics for 3Q24, confirming a consistent trend in operational stability. The REIT’s rent reversion rate was in the mid-teens, primarily driven by logistics, with management reaffirming a full-year guidance of high single-digit positive reversion. Portfolio occupancy was 92.1%, slightly down from 93.1% in 2Q24, with stability in Singapore and Europe/UK regions, while occupancy dipped in the U.S. and Australia due to specific non-renewals in Raleigh (business park) and Sydney (logistics).

Debt and Coverage Ratios

As of 3Q24, CLAR’s gearing ratio increased to 38.9%, up from 37.8% in 2Q24, with the cost of debt and interest coverage ratio stable at 3.7% and 3.5x, respectively. The REIT has continued its capital recycling efforts, recently divesting a logistics asset in Singapore to a data center operator at a premium above book value. This divestment generated SGD112.8 million, reflecting a 67% premium over the asset’s book value and an exit gross yield of 4.8%.

Portfolio Performance

The REIT’s portfolio achieved a rent reversion of +14.4% in 3Q24, with logistics assets showing strong performance. This figure significantly surpasses the anticipated full-year guidance, despite a conservative outlook by management. The recent divestment includes a 430,000 sq. ft. warehouse with unique features such as a floor loading capacity exceeding 30 kPa, ceiling height over 7.5m, and close proximity to a data center cluster. This facility, with a floor loading exceeding 30 kPa and ample power supply, positions it as a premium asset, adding to CLAR’s strategic value through targeted asset disposals.

Strategic Capital Recycling Initiatives

CLAR’s strategic capital recycling approach has focused on selling assets at a premium and redeploying proceeds for capex, debt reduction, or yield-enhancing investments. Following its most recent divestment to GDS, one of the awardees of Singapore’s combined 80MW data center capacity, CLAR plans to utilize proceeds to bolster its portfolio through either capital expenditure or selective acquisitions. This focus on asset rotation allows the REIT to maintain a balance between occupancy and growth in core regions.

Forecasts and Investment Strategy

Maybank maintains a “BUY” rating with an unchanged target price (TP) of SGD3.10 for CLAR, citing the REIT’s diversified revenue profile, strong credit metrics, and disciplined approach to capital allocation as stabilizing factors for its bottom line. Occupancy fluctuations are expected in certain business parks and logistics sectors due to high supply; however, CLAR’s proactive portfolio management and exposure to high-yield logistics and life sciences sectors should cushion potential volatility.

Risk Factors and Considerations

Key risks for CLAR include the potential non-renewal of leases in its U.S. and UK portfolios, exposure to higher interest rates, and lower valuations in overseas properties. Additionally, older Singapore assets may require higher capital expenditure, especially as CLAR continues to expand into industrial sectors globally. Maybank’s analysis notes that higher costs could challenge earnings but believes the REIT’s financial stability and capital recycling efforts provide a strong buffer.

ESG and Governance Highlights

CLAR operates under the CapitaLand group’s 2030 Sustainability Master Plan, which sets rigorous environmental goals. It has 43% of its properties certified under the BCA Green Mark, with green leasing initiatives and increased solar installations to meet sustainability targets by 2030. Governance measures include a well-structured board with high independence, adherence to regulatory frameworks, and a balanced management fee structure favoring unitholders.