Capitaland Ascendas REIT: Ready for next leg of growth
- FY22 DPU of 15.798 Scts in line, driven by acquisitions over the past 18 months
- Solid positive rental reversions across all markets and record high portfolio occupancy of c.94.6%
- Ongoing enhancement/development projects to drive the next leg of growth; focused on more projects ahead
- Maintain BUY with TP of S$3.40
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Revenues in FY22 grew 10.3% y-o-y
- Higher revenues of S$1,352.7m attributed to acquisitions, completion of development projects, and better performance of the Singapore portfolio
- Full year contributions from acquisitions in Europe, Singapore and the US in FY21
- Half year contribution from the seven logistics properties in Chicago acquired in June 2022
- Completion of developments: Singapore (UBIX), and Australia (500 Green Road and 7 Kiora Crescent)
- NPI increased by a slower pace of 5.2% to S$968.8m as higher utilities led to slightly lower NPI margins
- Utility costs have stabilized with contracts locked-in for the next two years
- Approximately 5-10% increase in service charge to tenants will help to offset cost inflation in OPEX
- FY22 DPU of 15.798 Scts was 3.5% higher y-o-y
- In line with our FY22 projections
- 2H22 DPU of 7.925 Scts was 0.7% higher h-o-h
Positive rental reversions were recorded across all markets and property types
- Continued positive rental reversions of +8.0% in FY22
- Singapore: +7.0%
- Australia: +14.2%
- US: +29.2%
- UK/Europe: +11.7%
- The logistics segment was the star performer in FY22
- Logistics segment: Singapore (+ 11.1%), Australia (+15.2%), US (+45.7%)
- Positive rental reversions expected to continue in FY23; supported by the logistics segment which should continue to record rising rents
- Expect positive rental reversions for business park segment to continue but more subdued
Record high portfolio occupancy of 94.6%
- CLAR’s portfolio occupancy of 94.6% was the highest recorded in over a decade
- Higher occupancy rates in Singapore (logistics and industrials) and Australia (business space)
- UK/Europe occupancy rate remains stable
- US occupancy rate dipped slightly to 94.0% (vs. 94.8% in 3Q22)
- 1ppt increase in portfolio occupancy q-o-q
- Approximately 21.0% of CLAR’s leases are due to expire in FY23; bulk will come from business space and life sciences properties
- 17.5% from multi-tenanted buildings, with the remaining c.3.5% from master leases
- Bulk of expiries in FY23 will come from Singapore
Diversified portfolio ensures stability in valuations
- Portfolio valuations remained relatively stable, supported by diversified portfolio across the various markets
- Slight expansion in cap rates for Singapore, Australia and the US
- Starting to see more opportunities in the US following cap rate expansion
- Cap rates for data centres also expanded
- Both in the US and UK/Europe
- With the cap rate expansion of DCs in UK/Europe, there may be some acquisition opportunities in the near future
- Actively on the lookout for acquisitions, but will acquire on a very disciplined approach
- On a same-store basis, valuation fell marginally by c.1.1%
S$617.4m of ongoing projects to drive earnings as they come online
- S$617m of ongoing projects to gradually come online over the next three to four years
- Approximately S$233m of these projects are due to complete in 2H23
- CLAR will continue to evaluate its portfolio and lookout for more improvement projects that will drive earnings growth
- For example, enhancements at DC assets in the US to increase electrical supply
- Redevelopment of UBIX (Singapore) into a high-spec industrial property was recently completed and signing rents are c.20% higher than previously expected
Borrowing costs inched up 0.3ppt q-o-q
- Borrowing costs inched up to 2.5% (vs. 2.2% in 3Q22)
- Borrowing costs expected to continue trending upwards with rising interest rates and the c.S$669m in loans due for refinancing in FY24
- Gearing remained healthy at 36.3%, providing ample debt headroom for further acquisition and AEI/redevelopment projects
- 4% of debt has been hedged to fixed rates for an average term of 3.3 years
- Every 50bps increase in interest rates would impact DPU by 0.15 Scts (or c.1%)
Revenues in FY22 grew 10.3% y-o-y
- Higher revenues of S$1,352.7m attributed to acquisitions, completion of development projects, and better performance of the Singapore portfolio
- Full year contributions from acquisitions in Europe, Singapore and the US in FY21
- Half year contribution from the seven logistics properties in Chicago acquired in June 2022
- Completion of developments: Singapore (UBIX), and Australia (500 Green Road and 7 Kiora Crescent)
- NPI increased by a slower pace of 5.2% to S$968.8m as higher utilities led to slightly lower NPI margins
- Utility costs have stabilized with contracts locked-in for the next two years
- Approximately 5-10% increase in service charge to tenants will help to offset cost inflation in OPEX
- FY22 DPU of 15.798 Scts was 3.5% higher y-o-y
- In line with our FY22 projections
- 2H22 DPU of 7.925 Scts was 0.7% higher h-o-h
Positive rental reversions were recorded across all markets and property types
- Continued positive rental reversions of +8.0% in FY22
- Singapore: +7.0%
- Australia: +14.2%
- US: +29.2%
- UK/Europe: +11.7%
- The logistics segment was the star performer in FY22
- Logistics segment: Singapore (+ 11.1%), Australia (+15.2%), US (+45.7%)
- Positive rental reversions expected to continue in FY23; supported by the logistics segment which should continue to record rising rents
- Expect positive rental reversions for business park segment to continue but more subdued
Record high portfolio occupancy of 94.6%
- CLAR’s portfolio occupancy of 94.6% was the highest recorded in over a decade
- Higher occupancy rates in Singapore (logistics and industrials) and Australia (business space)
- UK/Europe occupancy rate remains stable
- US occupancy rate dipped slightly to 94.0% (vs. 94.8% in 3Q22)
- 1ppt increase in portfolio occupancy q-o-q
- Approximately 21.0% of CLAR’s leases are due to expire in FY23; bulk will come from business space and life sciences properties
- 17.5% from multi-tenanted buildings, with the remaining c.3.5% from master leases
- Bulk of expiries in FY23 will come from Singapore
Diversified portfolio ensures stability in valuations
- Portfolio valuations remained relatively stable, supported by diversified portfolio across the various markets
- Slight expansion in cap rates for Singapore, Australia and the US
- Starting to see more opportunities in the US following cap rate expansion
- Cap rates for data centres also expanded
- Both in the US and UK/Europe
- With the cap rate expansion of DCs in UK/Europe, there may be some acquisition opportunities in the near future
- Actively on the lookout for acquisitions, but will acquire on a very disciplined approach
- On a same-store basis, valuation fell marginally by c.1.1%
S$617.4m of ongoing projects to drive earnings as they come online
- S$617m of ongoing projects to gradually come online over the next three to four years
- Approximately S$233m of these projects are due to complete in 2H23
- CLAR will continue to evaluate its portfolio and lookout for more improvement projects that will drive earnings growth
- For example, enhancements at DC assets in the US to increase electrical supply
- Redevelopment of UBIX (Singapore) into a high-spec industrial property was recently completed and signing rents are c.20% higher than previously expected
Borrowing costs inched up 0.3ppt q-o-q
- Borrowing costs inched up to 2.5% (vs. 2.2% in 3Q22)
- Borrowing costs expected to continue trending upwards with rising interest rates and the c.S$669m in loans due for refinancing in FY24
- Gearing remained healthy at 36.3%, providing ample debt headroom for further acquisition and AEI/redevelopment projects
- 4% of debt has been hedged to fixed rates for an average term of 3.3 years
- Every 50bps increase in interest rates would impact DPU by 0.15 Scts (or c.1%)
Our thoughts
CLAR’s resilience continues to surprise on the upside. Despite higher OPEX 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. Further positive rental reversions expected in FY23 will continue to support the upward trajectory in earnings.
Although portfolio valuations (same-store basis) were down marginally, we understand that CLAR will continue to explore AEIs on lower yielding assets to drive future earnings and valuation growth. An example would be the increase in electrical supply at its DCs in the US to drive higher capacity.
On the capital management front, CLAR has ample debt headroom to embark on acquisition and new AEI/redevelopment projects. We understand that with cap rates in some markets expanding, there are some interesting opportunities surfacing, especially for DCs in UK/Europe, and business space and logistics assets in the US.
Although rising cost of borrowings will continue to offset earnings growth going forward, we believe CLAR will be able to offset the bulk of these increases through its active capital management initiatives. Two recently completed acquisitions in Singapore valued at a total of c.S$297m will also drive revenue growth in FY23.
We have thus revised our projections upwards to account for the strong portfolio performance, as well as the relatively resilient NPI margins (following the hedging of utility costs and increase of service charges). As the upward revision to our DPU estimates over the next two years (c.2.0% increase) are marginal, we will be maintaining our TP of S$3.40 and BUY recommendation.
FY Dec | 2H2021 | 1H2022 | 2H2022 | % chg yoy | % chg hoh |
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Gross revenue | 641 | 667 | 686 | 7.1 | 2.9 |
Property expenses | (165) | (190) | (194) | 17.5 | 2.5 |
Net Property Income | 475 | 477 | 492 | 3.5 | 3.1 |
Other Operating expenses | (55.2) | (51.0) | (49.8) | (9.7) | (2.2) |
Other Non Opg (Exp)/Inc | 51.8 | 89.4 | 0.99 | (98.1) | (98.9) |
Associates & JV Inc | 0.12 | 0.16 | 0.19 | 61.7 | 14.8 |
Net Interest (Exp)/Inc | (77.0) | (80.0) | (108) | (40.0) | (34.8) |
Exceptional Gain/(Loss) | 275 | 0.0 | 73.8 | - | - |
Net Income | 670 | 436 | 409 | (38.9) | (6.1) |
Tax | (65.4) | (31.8) | (52.6) | (19.6) | 65.8 |
Minority Interest | 0.0 | 0.0 | 0.0 | - | - |
Net Income after Tax | 604 | 404 | 357 | (41.0) | (11.7) |
Total Return | 604 | 404 | 357 | (41.0) | (11.7) |
Non-tax deductible Items | (285) | (73.1) | (23.4) | (91.8) | (68.0) |
Net Inc available for Dist. | 319 | 331 | 333 | 4.4 | 0.7 |
Ratio (%) |
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Net Prop Inc Margin | 74.2 | 71.6 | 71.7 |
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Dist. Payout Ratio | 100.0 | 100.0 | 100.0 |
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Related Stories
- Capitaland Ascendas REIT: Proposed divestment at a more than 67% premium14 Oct 2024
- Capitaland Ascendas REIT: Recovering the growth path31 Jul 2024
- Capitaland Ascendas REIT (CLAR SP): 1Q24 Business Updates: Sustained strong positive rental reversions to compensate for slight blip in occupancy rates23 Apr 2024
Related Stories
- Capitaland Ascendas REIT: Proposed divestment at a more than 67% premium14 Oct 2024
- Capitaland Ascendas REIT: Recovering the growth path31 Jul 2024
- Capitaland Ascendas REIT (CLAR SP): 1Q24 Business Updates: Sustained strong positive rental reversions to compensate for slight blip in occupancy rates23 Apr 2024