CGS International

April 28, 2025

CapitaLand Ascendas REIT (CLAR): Navigating Occupancy Dips with Rental Uplift

CLAR 1Q25 Business Update: Key Highlights

• CapitaLand Ascendas REIT (CLAR) reported a 1.3% point quarter-over-quarter decline in portfolio occupancy, landing at 91.5% [[1]].
• This dip was primarily influenced by lower occupancy rates in Singapore, the US, and Australia [[1]].
• Despite occupancy challenges, rental reversions remained positive, averaging +11% in 1Q25 [[1]].
• Management has set guidance for FY25F rental reversion to remain positive in the mid-single-digit range [[1]].
• Aggregate leverage saw a slight increase quarter-over-quarter, reaching 38.9%, while average funding costs decreased by 10 basis points to 3.6% [[1]].
• Approximately 73.6% of CLAR’s debt is under fixed rates as of the end of 1Q25 [[1]].

Singapore Portfolio: Occupancy and Reversions

• Singapore’s occupancy rates experienced a slight decrease, settling at 91.6%, primarily due to reduced occupancy at Telepark [[1]].
• This was partially mitigated by higher take-up rates at Techpoint and 3 Changi Business Park Vista [[1]].
• Rental reversion in Singapore averaged +7% in 1Q25, driven by strong performance in the industrial and data center segments, which saw a +9% increase [[1]].
• The redevelopment project at 1 Science Park Drive, where CLAR holds a 34% stake, was completed during the quarter. The property boasts a lettable area of 103,200 sqm, with a pre-commitment rate of 76% as of the end of 1Q25, and an additional 19% under advanced negotiations [[1]].
• Contributions from this project are expected to significantly boost earnings from FY26F onwards as tenants begin to occupy the leases [[1]].
• CLAR has further redevelopment and asset enhancement works (AEIs) underway within its Singapore portfolio, valued at S\$380m, with completion scheduled between 4Q25 and 1Q28 [[1]].
• These projects are expected to progressively enhance CLAR’s income growth visibility in the medium term [[1]].
• CLAR is also considering selective divestment opportunities to refine its Singapore portfolio and optimize returns [[1]].

Overseas Portfolio Performance

• The Australia portfolio experienced a 3.3% point decrease in occupancy, ending 1Q25 at 89.2%. This was attributed to frictional vacancy at a logistics property in Sydney and a business space property in Brisbane [[1]].
• Discussions are ongoing with prospective tenants to lease the Sydney asset, and commitments have been secured for part of the vacated space in the Brisbane property [[1]].
• Australia’s logistics segment reported a notable +59% rental reversion [[1]].
• In the US, take-up rates fell quarter-over-quarter to 88%, influenced by lower occupancy at a Kansas City logistics property and at 5005 & 5100 Wateridge in San Diego [[1]].
• However, the US portfolio achieved a healthy rental reversion averaging +10.3% in 1Q25 [[1]].
• CLAR has earmarked the Wateridge properties for AEIs, commencing in 2Q25 [[1]].
• The acquisition of DHL Indianapolis Logistics Centre in 1Q25, at an initial yield of 7.6%, is expected to bolster US contributions in the upcoming quarters [[1]].

Investment Recommendation

• CGS International maintains an Add rating for CLAR, with an unchanged DDM-based Target Price (TP) of S\$3.10 [[1]].
• The analysts continue to favor CLAR for its well-diversified and resilient portfolio, coupled with a healthy balance sheet [[1]].
• Potential catalysts for a re-rating include the completion of ongoing asset enhancement and redevelopment projects, which are expected to boost contributions between 1Q25F and 1Q26F, as well as a faster-than-expected global recovery and accretive new acquisitions [[1]].
• Key downside risks include a prolonged economic downturn that could adversely impact the ability to achieve positive rental reversions [[1]].

SREIT Peer Comparison

Here is a snapshot of SREIT peer comparison table:

ESG Analysis of CapitaLand Ascendas REIT

• CLAR received a B rating for its overall ESG performance in 2023 from LSEG, with individual scores of B for Environmental, B for Social, and B- for Governance [[3]].
• The REIT maintained an A+ rating for ESG controversies [[3]].
• Aligned with CapitaLand’s 2030 Sustainability Master Plan, CLAR focuses on building portfolio resilience and resource efficiency, enabling thriving and future-adaptive communities, and accelerating sustainability, innovation, and collaboration [[3]].
• CLAR aims for all existing properties to achieve a minimum green rating by 2030 and targets 100% renewable energy usage for all Singapore Science Park I owned and managed properties by 2025 [[3]].
• In 2023, CLAR scored A for public disclosure in the Global Real Estate Sustainability Benchmark (GRESB) survey and ranked third for Singapore Governance and Transparency Index (REITs and Business Trusts) category [[3]].

Areas for Improvement

• Segments within LSEG’s ESG rankings that received lower ratings include CSR strategy (D-), resource use (C+), and product responsibility (C) in 2023 [[3]].
• Shareholders (B+) and workforce (B) ratings also saw year-over-year weakening [[3]].

ESG Highlights and Trends

• CLAR ranked 39th among Singapore companies and 12th among its real estate peers, according to LSEG [[3]].
• Key ESG achievements in 2023 include an average 2.8% decline in energy intensity across its portfolio and a 2.5% decrease in Scope 1 & 2 emissions intensity [[3]].
• Renewable energy consumption increased from 16 GWh in FY22 to 17.7 GWh in FY23 [[3]].
• CLAR aims to power the common facilities’ electricity usage with renewable energy for properties located at Singapore Science Park I by 2025F [[3]].
• As of FY23, 67.8%, 39%, 7.7%, and 4.6% of its net lettable area in Singapore, Australia, UK, and US, respectively, were made up of green leases [[3]].
• Approximately 46% of its portfolio, by GFA, is green-certified as of December 2023 [[3]].
• CLAR scored well in environmental innovation (A-) and shareholders (B+) in FY23 [[3]].

Financial Performance: By the Numbers

Profit & Loss (S\$m)

• Rental Revenues:
  • Dec-23A: 1,480
  • Dec-24A: 1,523
  • Dec-25F: 1,533
  • Dec-26F: 1,548
  • Dec-27F: 1,589 [[4]]
• Net Property Income:
  • Dec-23A: 1,023
  • Dec-24A: 1,050
  • Dec-25F: 1,069
  • Dec-26F: 1,088
  • Dec-27F: 1,112 [[4]]
• Net Profit:
  • Dec-23A: 137
  • Dec-24A: 790
  • Dec-25F: 670
  • Dec-26F: 691
  • Dec-27F: 711 [[4]]
• Distributable Profit:
  • Dec-23A: 654
  • Dec-24A: 559
  • Dec-25F: 678
  • Dec-26F: 699
  • Dec-27F: 720 [[4]]

Cash Flow (S\$m)

• Cashflow From Operations:
  • Dec-23A: 956
  • Dec-24A: 948
  • Dec-25F: 957
  • Dec-26F: 977
  • Dec-27F: 999 [[4]]
• Cash Flow From Investing:
  • Dec-23A: (926)
  • Dec-24A: (62)
  • Dec-25F: (197)
  • Dec-26F: (50)
  • Dec-27F: (50) [[4]]
• Cash Flow From Financing:
  • Dec-23A: (28)
  • Dec-24A: (945)
  • Dec-25F: (898)
  • Dec-26F: (918)
  • Dec-27F: (940) [[4]]

Balance Sheet (S\$m)

• Total Investments:
  • Dec-23A: 16,923
  • Dec-24A: 16,758
  • Dec-25F: 16,955
  • Dec-26F: 17,005
  • Dec-27F: 17,055 [[5]]
• Total Equity:
  • Dec-23A: 10,220
  • Dec-24A: 10,309
  • Dec-25F: 10,359
  • Dec-26F: 10,368
  • Dec-27F: 10,377 [[5]]

Key Ratios

• Gross Property Revenue Growth:
  • Dec-23A: 9.40%
  • Dec-24A: 2.92%
  • Dec-25F: 0.64%
  • Dec-26F: 1.02%
  • Dec-27F: 2.64% [[5]]
• Net Property Income Margin:
  • Dec-23A: 69.1%
  • Dec-24A: 68.9%
  • Dec-25F: 69.7%
  • Dec-26F: 70.3%
  • Dec-27F: 70.0% [[5]]
• DPS Growth:
  • Dec-23A: (4.04%)
  • Dec-24A: 0.30%
  • Dec-25F: 1.33%
  • Dec-26F: 2.93%
  • Dec-27F: 2.80% [[5]]

Key Drivers

• Occupancy (%):
  • Dec-23A: 92.9%
• AUM (S\$m):
  • Dec-23A: 16,949
  • Dec-24A: 17,027
  • Dec-25F: 17,224
  • Dec-26F: 17,274
  • Dec-27F: 17,324 [[5]]