Capitaland Ascendas REIT: Recovering the growth path

Market Insights

Equities

Capitaland Ascendas REIT: Recovering the growth path

Dale LAI31 Jul 2024

Key summary points

Starting to see higher rents and improved NPI margins translating to higher earnings as financing costs peak
1H24 DPU of 7.524Scts is 1.1% higher h/h, in line with our FY24F projections
Anticipating the return of accretive acquisitions in Singapore and the US to drive earnings growth
Maintain BUY with TP of SGD3.25

Manage your portfolio from your iWealth account

Start Now

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.

FY Dec	1H2023	2H2023	1H2024	% chg y/y	% chg h/h

Gross revenue	718	762	770	7.2	1.1
Property expenses	(209)	(247)	(242)	15.5	(2.3)
Net Property Income	509	514	528	3.9	2.7
Other Operating expenses	(51.8)	(51.0)	(50.6)	(2.3)	(0.9)
Other Non Opg (Exp)/Inc	43.5	(52.1)	7.31	(83.2)	nm
Associates & JV Inc	0.18	0.30	0.25	40.0	(19.1)
Net Interest (Exp)/Inc	(120)	(136)	(138)	(14.3)	(0.9)
Exceptional Gain/(Loss)	11.8	0.0	0.63	(94.6)	nm
Net Income	392	275	349	(11.2)	26.7
Tax	(19.8)	26.2	5.21	nm	(80.1)
Minority Interest	0.0	0.0	0.0	-	-
Net Income after Tax	368	297	358	(2.7)	20.7
Total Return	368	(199)	358	(2.7)	nm
Non-tax deductible Items	(45.0)	521	(22.9)	(49.1)	nm
Net Inc available for Dist.	327	327	331	1.0	1.2
Ratio (%)
Net Prop Inc Margin	70.9	67.5	68.6
Dist. Payout Ratio	100.0	100.0	100.0

Access more at DBS Insights Direct

Get more in-depth analysis from DBS Research

Disclaimers and Important Notices

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere.
There is no planned schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

General	This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
Australia	This report is being distributed in Australia by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”) or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946. DBS Bank Ltd, DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong	This report has been prepared by a personnel of DBS Bank, who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Bank (Hong Kong) Limited (''DBS HK''), a registered institution registered with the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). DBS Bank Ltd., Hong Kong Branch is a limited liability company incorporated in Singapore. For any query regarding the materials herein, please contact Dennis Lam (Reg No. AH8290) at [email protected]
Indonesia	This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.
Malaysia	This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies. Wong Ming Tek, Executive Director, ADBSR
Singapore	This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6878 8888 for matters arising from, or in connection with the report.
Thailand	This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. For any query regarding the materials herein, please contact Chanpen Sirithanarattanakul at [email protected]
United Kingdom	This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. This report is disseminated in the United Kingdom by DBS Bank Ltd, London Branch (“DBS UK”). DBS Bank Ltd is regulated by the Monetary Authority of Singapore. DBS UK is authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. In respect of the United Kingdom, this report is solely intended for the clients of DBS UK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS UK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.
Dubai International Financial Centre	This communication is provided to you as a Professional Client or Market Counterparty as defined in the DFSA Rulebook Conduct of Business Module (the "COB Module"), and should not be relied upon or acted on by any person which does not meet the criteria to be classified as a Professional Client or Market Counterparty under the DFSA rules. This communication is from the branch of DBS Bank Ltd operating in the Dubai International Financial Centre (the "DIFC") under the trading name "DBS Bank Ltd. (DIFC Branch)" ("DBS DIFC"), registered with the DIFC Registrar of Companies under number 156 and having its registered office at units 608 - 610, 6th Floor, Gate Precinct Building 5, PO Box 506538, DIFC, Dubai, United Arab Emirates. DBS DIFC is regulated by the Dubai Financial Services Authority (the "DFSA") with a DFSA reference number F000164. For more information on DBS DIFC and its affiliates, please see http://www.dbs.com/ae/our--network/default.page. Where this communication contains a research report, this research report is prepared by the entity referred to therein, which may be DBS Bank Ltd or a third party, and is provided to you by DBS DIFC. The research report has not been reviewed or authorised by the DFSA. Such research report is distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS DIFC. Unless otherwise indicated, this communication does not constitute an "Offer of Securities to the Public" as defined under Article 12 of the Markets Law (DIFC Law No.1 of 2012) or an "Offer of a Unit of a Fund" as defined under Article 19(2) of the Collective Investment Law (DIFC Law No.2 of 2010). The DFSA has no responsibility for reviewing or verifying this communication or any associated documents in connection with this investment and it is not subject to any form of regulation or approval by the DFSA. Accordingly, the DFSA has not approved this communication or any other associated documents in connection with this investment nor taken any steps to verify the information set out in this communication or any associated documents, and has no responsibility for them. The DFSA has not assessed the suitability of any investments to which the communication relates and, in respect of any Islamic investments (or other investments identified to be Shari'a compliant), neither we nor the DFSA has determined whether they are Shari'a compliant in any way. Any investments which this communication relates to may be illiquid and/or subject to restrictions on their resale. Prospective purchasers should conduct their own due diligence on any investments. If you do not understand the contents of this document you should consult an authorised financial adviser.
United States	This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.
Other jurisdictions	In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

HONG KONG DBS Bank (Hong Kong) Ltd Contact: Dennis Lam 13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong Tel: 852 3668 4181 Fax: 852 2521 1812 e-mail: [email protected]	SINGAPORE DBS Bank Ltd Contact: Andy Sim Marina Bay Financial Centre Tower 3 Singapore 018982 Tel: 65 6878 8888 e-mail: [email protected] Company Regn. No. 196800306E
INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: Maynard Priajaya Arif DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: 62 21 3003 4900 Fax: 6221 3003 4943 e-mail: [email protected]	THAILAND DBS Vickers Securities (Thailand) Co Ltd Contact: Chanpen Sirithanarattanakul 989 Siam Piwat Tower Building, 9th, 14th-15th Floor Rama 1 Road, Pathumwan, Bangkok Thailand 10330 Tel. 66 2 657 7831 Fax: 66 2 658 1269 e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand

Manage your portfolio from your iWealth account

Start Now

Capitaland Ascendas REIT: Recovering the growth path

Related Stories

Related Stories

Related Stories

Useful Links

Others

Contact

Markets