Date: September 25, 2024
Broker Name: CGS International Securities Pte. Ltd.

Overview

CapitaLand Ascendas REIT (CLAR) is highlighted as a top pick in the REIT sector, with an “ADD” rating. The stock is currently trading at S$2.88 with a target price of S$3.23. CLAR’s diversified and resilient portfolio, along with its healthy balance sheet, is key to its strong performance and growth potential.

Diversified Portfolio

CLAR benefits from a well-diversified portfolio, both geographically and across asset classes. The REIT has significant overseas investments, which are highly hedged (75% natural hedge) to protect against currency fluctuations. This portfolio provides resilience and stability, ensuring strong performance even in fluctuating market conditions.

Interest Rate Environment

The Fed’s interest rate cuts are expected to provide tailwinds for the REIT sector, and CLAR stands to benefit significantly. Lower interest rates would reduce the cost of capital, improving the REIT’s ability to pursue inorganic growth opportunities. As interest rates decline, CLAR is well-positioned to experience capital value stability and balance sheet improvements, which would support further growth.

Dividend Yield and Performance

As of FY24F, CLAR offers an attractive dividend yield of 5.37%, which is expected to increase slightly to 5.60% by FY26F. The REIT’s dividend yield remains competitive, supported by its strong portfolio performance and effective cost management. CLAR is trading at a P/BV of 1.24x, reflecting the market’s positive sentiment and confidence in the REIT’s outlook.

Inorganic Growth Prospects

CLAR is well-positioned to take advantage of inorganic growth opportunities due to its low gearing of 37.8%. This financial flexibility allows the REIT to make strategic acquisitions, further strengthening its portfolio. With a strong balance sheet and the ability to tap into low-cost capital, CLAR is expected to continue expanding its asset base in high-growth sectors.

Key Financial Metrics

• P/E Ratio (FY24F): 18.82
• Dividend Yield: 5.37% (FY24F), 5.44% (FY25F), 5.60% (FY26F)
• P/BV: 1.24x
• Target Price: S$3.23
• Current Price: S$2.88

Conclusion

CapitaLand Ascendas REIT’s diversified portfolio, financial strength, and favorable positioning in the current interest rate environment make it an attractive investment. With an expected increase in dividend yields and strategic growth opportunities, CLAR continues to be a top pick in the SREIT sector, as outlined by CGS International in its September 2024 report.