(+) 1H24 revenues and NPI were up y/y

• Gross revenues rose 7.2% y/y to SGD770.1mn, and NPI was up 3.9% y/y to SGD528.4mn due to:
• contributions from acquisitions of The Shugart (Singapore), and The Chess Building (UK) in FY23
• completion of the development of MQX4 (Australia), and the conversion of 6055 Lusk Boulevard (US) at the end of FY23
• an increase in NPOI, partially offset by higher operating expenses
• The higher revenues and NPI on a h/h basis were also due to the full six month contributions of acquisitions and completion of developments

(+) 1H24 DPU of 7.524Scts was in line with our projections

• 1H24 DPU was 2.5% lower y/y, but 1.1% higher h/h
• The lower DPU y/y was mainly due to higher financing costs, as well as the enlarged unit base from the private placement in May 2023
• However, DPU improved h/h as positive rental reversions drove revenues, while financing costs remained fairly stable h/h
• 1H24 DPU of 7.524Scts made up 49.5% of our FY24 projections

(+) Sustained strong positive rental reversions despite some decline in occupancy

• 2Q24 saw another quarter of strong positive rental reversion of +11.7%
• Including the +16.0% in 1Q24, positive rental reversions in 1H24 averaged at 13.4%
• This prompted CLAR to revise their rental reversions guidance upward
• CLAR anticipates that rental reversions in FY24 will be in the high single-digits
• Positive rental reversions in 2Q24 came from all markets and across various property types
• Most notable was the 24.9% positive reversion for Singapore logistics, and +13.5% for logistics properties in the US
• Even as the logistics segment continues to outperform and deliver strong double-digit positive reversions, we understand that the growth has slowed
• Although still in positive territory, rental reversions and backfilling has somewhat normalized
• Backfilling will take longer, and revert to the typical 6-12 months vacancy period
• Overall portfolio occupancies dipped marginally by 0.2ppt q/q to 93.1%
• Dip in occupancies mainly due to lower occupancy rates in the US and Singapore
• Expect to see some weakness in the US business park segment
• Several logistics tenants have not renewed their leases as they required larger space that CLAR was not able to provide
• Despite the overall dip in occupancy rates, CLAR remains confident that they will be able to backfill vacancies over the next two quarters and maintain a relatively stable occupancy rate

(+) Contrary to earlier media reports, Changi Business Park has turned the corner

• Contrary to media reports of the hollow-out of Changi Business Parks, CLAR reiterated that their assets in the precinct continues to remain resilient
• Although there has been an overall return of space in the precinct over the past two years, CLAR expects occupancy rates to start improving
• All major leases with Financial Institutions have been renewed, the next major lease expiry only in 4Q25
• In 1H24 there were several leases signed at Hansapoint and One@Changi City
• Julius Baer signed a c.75,000 sqft lease at One@Changi City
• Singapore Airlines will be relocating their corporate headquarters to One@Changi City next year
• Renewals have mostly be accompanied by very strong double-digit positive rental reversions (c. +18%) in the past few years despite downsizing of tenants

(+) Gearing and financing costs remained stable q/q

• Gearing improved 50bps q/q to 37.8%
• Average financing costs saw a marginal 10bps decline q/q to 3.7%
• With interest rates looking to have peaked, management remains confident that financing costs will remain relatively stable at current levels for the rest of the year

• Only SGD377mn in loans are due for refinancing at the end of the year, and could potentially lead to marginally higher overall borrowing costs for FY25
• ICR remains healthy at 3.7x, while borrowings on fixed rates increased to 83.0%
• Gearing ratio ((D+P)/A) remained stable at 41.0%

(+) Continue to focus on AEI/redevelopment projects, while keeping a look out for more inorganic opportunities

• CLAR commenced two new AEI projects in 2Q24
• SGD22.7mn AEI at Aperia to relocate industrial units to level 3, while converting level 1 units to retail shops; projected ROI is between 7.%-8.0%
• SGD1.5mn AEI at One@Changi City to refurbish the interior
• There are currently six ongoing AEI/redevelopment projects that will drive organic growth
• With the market looking more conducive now, CLAR will be more actively looking for accretive acquisitions and divestment of lower-yielding assets
• Acquisitions in Singapore and the US are currently accretive, and pockets of accretive deals are appearing in Europe/UK
• The redevelopment of a data centre property in the UK is progressing well
• Planning permissions have been received, while the main outstanding item is the allocation of increased power
• CLAR is unable to share more details at this point as details such as power capacity, CAPEX, duration of redevelopment, etc. depends on the power allocation for the site

More than SGD570m in ongoing projects to drive improved returns for the existing portfolio












Source: CapitaLand Ascendas REIT


Our thoughts
With the continued strong positive rental reversions and the peaking of financing costs, higher revenues have started to flow through to earnings and DPU. Despite some fluctuations in occupancy rates, the strong double-digit positive rental reversions, and improvement in NPI margins (cost savings from electricity tariff rates) have led to the 1.1% increase in DPU h/h.

It is heartening to note that management is looking to step up their acquisition and asset recycling plans in 2H24, while ongoing AEI projects will complement earnings growth. With a healthy gearing of only 38.3%, CLAR has ample debt headroom of c.SGD600mn before gearing increases to 40%. Moreover, asset divestments will provide CLAR with additional firepower to pounce on opportunities.

We have made minor adjustments to our financing cost projections in FY25 and FY26, but earning remain largely in line with earlier projections. As such, we will be maintaining our BUY recommendation with an unchanged TP of SGD3.25.