• Divestment of 21 Jalan Buroh at >67% premium to valuations
• Tight exit yield of less than 4.1% likely due to potential to convert property into a data centre asset
• Gearing to potentially be lowered by 50bps; allowing a debt headroom of c.SGD800mn
• Maintain BUY with TP of SGD3.25

What has happened?

CapitaLand Ascendas REIT has announced the divestment of its property at 21 Jalan Buroh to a unit of GDS for SGD112.8mn. The property is a three-story ramp-up warehouse with an ancillary office block, and it has approximately 31 years remaining on its land lease tenure. This sale represents a premium of more than 67% over its latest valuation, with an exit yield of under 4.1%. Since GDS has links to Temasek-owned STT Global Data Centres, the transaction is classified as an interested party transaction. The divestment is expected to be completed in 4Q24, and if the proceeds are used to repay debt, it would improve CLAR’s gearing by c.50 bps (down to c.37.3%).

Our views.

Although 21 Jalan Buroh is a ramp-up logistics facility with a long remaining land tenure, we believe the divestment price justifies the sale. The property is located in an area surrounded by other data centre facilities (including Equinix, Meta, Google, and Keppel DC SGP5), leading us to anticipate that 21 Jalan Buroh could likely be converted into a data centre as well. This potential conversion supports the more than 67% premium achieved over its latest valuation. Some may question whether CLAR would have been better off undertaking the data centre conversion themselves rather than divesting the asset. However, given the high costs of developing data centres, which are estimated to range from USD10-12 million per megawatt, we believe CLAR's decision to divest is more capital efficient than pursuing the redevelopment in-house. Furthermore, new data centre developments in Singapore are approved on a case-by-case basis, adding another layer of complexity. The divestment strengthens CLAR's debt headroom, increasing it to c.SGD800mn (allowing for gearing of up to 40%). Having sold the property at an exit yield of c.4.1%, CLAR is well-positioned to redeploy the proceeds into accretive acquisitions.

We maintain our BUY rating with a TP of SGD3.25.






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