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CapitaLand Ascendas REIT 'continues to surprise' with FY2022 occupancy at 10-year high, higher DPU: analysts

Jovi Ho
Jovi Ho • 5 min read
CapitaLand Ascendas REIT 'continues to surprise' with FY2022 occupancy at 10-year high, higher DPU: analysts
In FY2022, CLAR completed $223 million worth of new acquisitions and the redevelopment of the UBIX building in Singapore, where signing rents are now 20% higher than previously expected. Photo: CLAR
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CapitaLand Ascendas REIT (CLAR) boasts a diversified portfolio of future-ready assets, say analysts, with results for FY2022 ended December in line with market expectations.

In a Feb 2 note, CGS-CIMB Research analysts Lock Mun Yee and Natalie Ong maintain “add” on CLAR with a higher target price of $3.06 from $2.98, which represents a 4.2% upside against the last traded price of $2.94.

CLAR is Singapore’s first and largest listed business space and industrial real estate investment trust. It has a diversified portfolio comprising assets in Singapore, the UK, Europe, Australia and the US. CLAR is managed by CapitaLand Ascendas REIT Management Limited, a wholly-owned subsidiary of Singapore-listed CapitaLand Investment Limited.

CLAR posted 3.5% higher y-o-y distribution per unit (DPU) of 15.798 cents, underpinned by portfolio occupancy reaching a 10-year high of 94.6% in FY20222 ended December.

Gross revenue for FY2022 rose by 10.3% y-o-y to $1.35 billion. Net property income (NPI) rose by 5.2% y-o-y to $968.8 million.

In FY2022, CLAR completed $223 million worth of new acquisitions and the redevelopment of the UBIX building in Singapore, where signing rents are now 20% higher than previously expected. CLAR achieved average rental reversion of 8% for FY2022.

See also: CapitaLand Ascendas REIT posts 3.5% higher DPU for FY2022, occupancy hits 10-year high

Aggregate leverage dipped to 36.3% at end-FY2022. Interest cost rose to 2.5% at end-FY2022 while 79.4% of debt hedged into fixed rates. Every 50 basis points (bps) increase in interest rates would impact DPU by 0.15 cents.

“With a higher cost of capital, CLAR remains selective on inorganic growth opportunities,” note Lock and Ong.

CLAR’s Singapore portfolio occupancy increased q-o-q to 92.1% from 91.8% in 3QFY2022. It achieved positive rental reversion of 7% in Singapore, led by a strong rental reversion of 11.1% at its logistics properties.

See also: CapitaLand Ascendas REIT: Offering stability amid accelerating rate hikes

Management guided that it expects reversions in Singapore to be in the positive mid-single-digit range for FY2023, say Lock and Ong. “CLAR has 25.6% of leases to be renewed in Singapore in FY2023, mainly in the industrial and data centre as well as business space and life sciences segments. Management guided that it had locked in a two-year utilities contract at higher cost and this is likely to erode near-term NPI margin.”

Lock and Ong lower their FY2023-2024 DPU estimates by 7.5%-8% on the back of higher operating and funding cost assumptions. “We continue to like CLAR for its diversified and resilient portfolio and healthy balance sheet. Potential catalysts include faster-than-expected global recovery and accretive new acquisitions. Downside risks include a protracted economic downturn.”

Next leg of growth

Meanwhile, DBS Group Research analysts Dale Lai and Derek Tan maintain “buy” on CLAR with an unchanged target price of $3.40.

“Tapping on its sponsor’s pipeline and through its extensive network, CLAR has demonstrated its ability to continuously source for accretive acquisitions to complement its existing portfolio. Its Sponsor’s development capabilities also provide CLAR with the opportunity to undertake development and redevelopment projects that usually generate higher returns and superior revaluation gains,” write Lai and Tan in a Feb 3 note.

CLAR’s $617.4 million of ongoing projects will drive earnings as they come online over the next three to four years, say Lai and Tan. “Approximately $233 million of these projects are due to complete in 2HFY2023. CLAR will continue to evaluate its portfolio and lookout for more improvement projects that will drive earnings growth.”

CLAR’s resilience continues to surprise on the upside, say Lai and Tan. “Despite higher operating expenses and financing costs, CLAR continues to report earnings growth. its active portfolio management and asset enhancement projects have led to improved yields at these properties. The quality of its portfolio has also ensured that CLAR continues to enjoy improvement in occupancy rates and strong positive rental reversions.”

See also: Citi maintains ‘buy’ rating for CapitaLand Ascendas REIT with lower TP of $3.00

Further positive rental reversions expected in FY2023 will continue to support the upward trajectory in earnings, they add.

In-line with expectations

CLAR's performance was broadly in-line with expectations, note UOB Kay Hian Research and RHB Group Research analysts.

In a Feb 6 note, UOBKH analyst Jonathan Koh maintains "buy" on CLAR with a higher target price of $3.30 from $3.27 previously.

He praises CLAR's "prudent capital management". "Healthy leverage of 36.3% and a high proportion of fixed rate debt of 79% helps CLAR to weather higher interest rates."

Koh also notes CLAR's plans to expand in new economy assets. "Many companies are building up their logistics capabilities to build resilience in their supply chains. The logistics industry is facing a structural change from just-in-time to just-in-case in supply chain management. CLAR focuses on last mile infill location near population centres where supply is limited. Digitalisation of the economy will also lead to greater demand for business space and data centres."

Meanwhile, RHB Group Research analyst Vijay Natarajan maintains "buy" on CLAR with a higher target price of $3.25 from $3.15 previously.

CLAR has the highest ESG score among the S-REITs at 3.3 out of 4.0, according to RHB's propretary ESG rating. "As this score is three notches above our country median, we applied a 6% premium to our intrinsic value to derive our target price," writes the RHB analyst.

That said, Natarajan has lowered his DPU forecast. "We tweak lower our FY2023-2024 DPU by 2%-3%, by adjusting interest cost assumptions."

He notes that CLAR's management will look more actively on divestments this year, "the proceeds from which could be redeployed into higher yielding assets, in our view". "Overall, we believe CAREIT could do $1.0 billion of acquisitions this year, especially in 2H2023."

Units in CLAR closed 6 cents higher, or 2.04% up, at $3 on Feb 3.

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