Capitaland Ascendas REIT: Building on firm foundations
- FY24 DPU of 15.205 Scts improved by 0.3% y/y, in line with our projections
- Development and AEIs projects to exceed SGD1bn in coming year, driving strong growth ahead
- Near-term challenges mitigated by completion of projects with high ROIs
- Maintain BUY, slight downward revision in TP to SGD3.20
Revenue grew by c.3% y/y. Gross revenues increased by 2.9% y/y, driven by full-year contributions from acquisitions made in the previous year. These included the addition of two properties in Singapore and one in the UK. However, this was partially offset by divestments and the decommissioning of properties for redevelopment. As a result, NPI grew by a marginally slower 2.6% y/y.
FY24 DPU increased by 0.3% y/y to 15.205 Scts. DI increased by 2.2% y/y, supported by higher NPI. However, the impact of higher financing costs during the year partially offset the gains. FY24 DPU came in at 15.205 Scts, which was in line with our projections but below consensus estimates. The growth in DPU was somewhat moderated by the increase in the number of units, as a portion of the Manager’s fees were paid in units instead of cash. Approximately 20% of the Manager’s fees in FY24 were paid in units, which had a dilutive effect on DPU.
Portfolio occupancy rate improved by 70bps q/q. Overall portfolio occupancy increased by 70bps q/q to 92.8%, supported by stronger leasing activity across key markets. Singapore, the US, and Australia all reported improvements in occupancy, while UK/Europe remained stable.
Singapore’s occupancy rate improved by 0.5ppt, driven by higher take-up at ONE@Changi City, Xilin Districentre D, and The Alpha. The US portfolio saw a notable 1.8ppt increase following the leasing of two logistics properties in Kansas City. In Australia, occupancy improved by 0.8ppt, supported by a new lease secured for a logistics property in Sydney.
In terms of new demand, Singapore’s leasing activity was driven by the engineering, electronics, and distribution & trading sectors. Meanwhile, in CLAR’s overseas markets, new tenants primarily came from the IT, lifestyle, and biomedical industries.
Double digit positive rental reversion of +11.6% in FY24. CLAR reported double-digit positive rental reversions across its entire portfolio, achieving an overall +11.6% rental reversion for FY24. All property segments experienced positive rental reversions, with the logistics segment outperforming, recording rental increases ranging from 21.4% to 48.4% across all markets.
Looking ahead, positive rental reversions are expected to continue, although at a moderated pace. Management has guided for mid-to-high single-digit rental reversions in FY25, as leases signed during the COVID-19 market lows are progressively marked to market.
Approximately 17.2% of leases in the portfolio are set to expire in FY25, with c.80% of them in Singapore—where market rents continue to exceed passing rents, presenting opportunities for further rental growth.
However, leasing activity in the US and Australia is expected to remain relatively subdued, as occupiers take longer to commit to new leases due to economic uncertainties. The US business park segment continues to experience negative net absorption, while fringe office markets in Australia are witnessing a migration of tenants to more centrally located space as the flight-to-quality trend persists.
Gearing improved 120bps q/q to 37.7%; slight uptick in portfolio valuations. CLAR’s aggregate leverage improved by 120bps q/q to 37.7%, driven by a marginal increase in portfolio valuations and the divestment of 21 Jalan Buroh. The property was sold on 24 November 2024 at SGD112.8mn, representing a premium of over 67% to its valuation. As a result, the debt ratio - (debt + perpetual securities) / assets - also saw a marginal improvement of 10bps y/y to 40.8%.
Portfolio valuations remained stable on a same-store basis y/y, with Singapore assets appreciating by c.2.3% due to strong underlying performance and slight cap rate compression. However, this was partially offset by valuation declines in the US (-6.6%) and Australia (-4.5%), largely attributed to cap rate expansions of c.50bps in both markets.
All-in financing costs remained unchanged q/q at 3.7%, though we anticipate a potential 20bps increase in FY25 as c.SGD835mn in loans are scheduled for refinancing over the year.
CLAR continues to focus on redevelopments and AEIs to drive growth. CLAR currently has over SGD800mn in projects under development, redevelopment, and AEIs. Of this, c.SGD500mn worth of projects are expected to come online in FY25, contributing to earnings growth.
Looking ahead, CLAR’s development and AEI pipeline is set to expand up to c.SGD1.5bn over the next year, as the REIT continues to focus on forward-funding acquisitions and additional redevelopment and AEI projects. Forward-funding projects are expected to provide attractive yields, while redevelopments and AEIs will drive organic portfolio growth.
The redevelopment of 1 Science Park Drive (Geneo) remains on track for completion in 1Q25. While leasing at the property has been more challenging than anticipated, the asset is still expected to stabilise over the next 2–3 years, contributing to long-term earnings.
Additionally, CLAR has announced plans to redevelop Logis Hub @ Clementi, with work scheduled to begin by the end of 2024. The redevelopment, estimated to cost SGD136.2mn, is expected to be completed by 1Q28. The project will intensify the site's plot ratio from 1.6x to 2.5x, effectively doubling the GFA. The revamped property will be a seven-story ramp-up logistics facility, with a projected ROI of c.8%, further strengthening CLAR’s logistics portfolio.
Ongoing projects to mitigate the vacating of CLAR’s largest tenant. CLAR’s largest tenant, Singtel, which contributes c.3.1% of gross rental income, will gradually vacate three data center (DC) properties over the next five years. Singtel is consolidating its DC operations into its new facility in Tuas, leading to the eventual vacation of Telepark, Kim Chuan Telecommunications Complex, and 38A Kim Chuan Road as their leases expire.
The first property to be vacated will be Telepark at 5 Tampines Central 6 in April 2025. Telepark has a remaining land lease tenure of over 66 years and is situated on a site zoned for commercial use, presenting a potential redevelopment opportunity for CLAR.
Given its strategic location, within walking distance to Tampines MRT station and situated within the Tampines Hub, the property has strong redevelopment potential. CLAR could explore converting the site into a commercial or integrated mixed-use development, which may attract tenants seeking accessibility and proximity to transport nodes and amenities. While the Singtel vacancies pose a near-term earnings risk, the long-term redevelopment potential of these assets could provide significant value uplift for CLAR’s portfolio.
Our views.
We continue to remain positive on CLAR as its ongoing portfolio improvement initiatives are expected to drive strong organic revenue growth. While there are several challenges on the horizon, including the refinancing of existing debt, the maturity of perpetual securities in September 2025, and the planned vacating of Telepark, we believe CLAR has several levers that will help mitigate these headwinds. These include the i) completion of the redevelopment project at Geneo, ii) continued organic growth driven by strong positive rental reversions, and iii) ample debt headroom to pursue further accretive acquisitions. Additionally, CLAR is actively considering divestments of lower-yielding assets, with a targeted range of SGD300-400mn, which will be used to fund further portfolio enhancements and acquisitions.
Looking ahead, we have revised our earnings forecasts to reflect the absence of income from the divestment of 21 Jalan Buroh and the planned vacancy of Telepark in April 2025. These adjustments have resulted in a slight downward revision of c.0.3% in our FY25 earnings projections. However, there remains potential upside to our estimates if i) the ramp-up of occupancy at Geneo progresses more quickly than anticipated, ii) if other vacancies within the portfolio are leased out ahead of expectations, or iii) if accretive acquisitions are made to offset the earnings impact.
Given these adjustments, we are lowering our TP marginally to SGD3.20 (from the previous SGD3.25). Despite this revision, we maintain our BUY recommendation, as CLAR continues to offer an attractive forward yield of approximately 6%. The REIT’s proactive portfolio management, ongoing AEIs, and robust rental growth outlook reinforce our confidence in its long-term prospects.
Interim Income Statement (SGDmn)
FY Dec | 2H2023 | 1H2024 | 2H2024 | % chg y/y | % chg h/h |
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Gross revenue | 762 | 770 | 753 | (1.1) | (2.2) |
Property expenses | (247) | (242) | (231) | (6.4) | (4.2) |
Net Property Income | 514 | 528 | 522 | 1.4 | (1.3) |
Other Operating expenses | (51.0) | (50.6) | (48.0) | (5.9) | (5.0) |
Other Non Opg (Exp)/Inc | (52.1) | 7.31 | 2.16 | N/A | (70.4) |
Associates & JV Inc | 0.30 | 0.25 | 0.25 | (17.2) | 2.4 |
Net Interest (Exp)/Inc | (136) | (138) | (134) | 1.9 | 2.8 |
Exceptional Gain/(Loss) | 0.0 | 0.63 | 44.7 | nm | nm |
Net Income | 275 | 349 | 387 | 40.6 | 11.0 |
Tax | 26.2 | 5.21 | 12.7 | (51.6) | 142.6 |
Minority Interest | 0.0 | 0.0 | 0.0 | - | - |
Net Income after Tax | 297 | 349 | 395 | 33.1 | 13.1 |
Total Return | (199) | 349 | 406 | nm | 16.2 |
Non-tax deductible Items | 521 | (22.9) | (72.4) | nm | 216.2 |
Net Inc available for Dist. | 327 | 331 | 338 | 3.4 | 2.2 |
Ratio (%) |
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Net Prop Inc Margin | 67.5 | 68.6 | 69.3 |
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Dist. Payout Ratio | 100.0 | 100.0 | 100.0 |
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Source of all data: Company, DBS
Interim Income Statement (SGDmn)
FY Dec | 2H2023 | 1H2024 | 2H2024 | % chg y/y | % chg h/h |
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Gross revenue | 762 | 770 | 753 | (1.1) | (2.2) |
Property expenses | (247) | (242) | (231) | (6.4) | (4.2) |
Net Property Income | 514 | 528 | 522 | 1.4 | (1.3) |
Other Operating expenses | (51.0) | (50.6) | (48.0) | (5.9) | (5.0) |
Other Non Opg (Exp)/Inc | (52.1) | 7.31 | 2.16 | N/A | (70.4) |
Associates & JV Inc | 0.30 | 0.25 | 0.25 | (17.2) | 2.4 |
Net Interest (Exp)/Inc | (136) | (138) | (134) | 1.9 | 2.8 |
Exceptional Gain/(Loss) | 0.0 | 0.63 | 44.7 | nm | nm |
Net Income | 275 | 349 | 387 | 40.6 | 11.0 |
Tax | 26.2 | 5.21 | 12.7 | (51.6) | 142.6 |
Minority Interest | 0.0 | 0.0 | 0.0 | - | - |
Net Income after Tax | 297 | 349 | 395 | 33.1 | 13.1 |
Total Return | (199) | 349 | 406 | nm | 16.2 |
Non-tax deductible Items | 521 | (22.9) | (72.4) | nm | 216.2 |
Net Inc available for Dist. | 327 | 331 | 338 | 3.4 | 2.2 |
Ratio (%) |
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Net Prop Inc Margin | 67.5 | 68.6 | 69.3 |
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Dist. Payout Ratio | 100.0 | 100.0 | 100.0 |
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Source of all data: Company, DBS
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