Capitaland Ascendas REIT: 1H26 Results: Accelerating earnings growth from acquisitions and redevelopments ramp up
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- 1H26 DPU of 7.482 Scts in in line with our estimates, forming c.50% of our FY26 projections
- The c.SGD1.8bn of acquisitions announced and completed in 1H26 will drive earnings growth in 2H26 and FY27
- Recently completed redevelopments are gradually ramping up; main drivers of occupancy rates and earnings in 2H26
- Maintain BUY with unchanged TP of SGD3.20ross revenues and NPI increased by more than 6% y/y.
Gross revenue increased 6.7% y/y to SGD805.5mn while NPI rose 6.2% y/y to SGD556.1mn, broadly in line with expectations and supported by acquisitions completed across Singapore, Europe, the US and Japan during 2025 and 2026, together with stronger contributions from existing Australian properties. These more than offset the earnings impact from divestments completed in 2025.
Portfolio NPI margins remained resilient at c.69.0%, although higher property operating expenses, particularly utilities and operating costs, continued to exert some pressure. Electricity costs remain well managed through tariff contracts that are approximately 9-10% below prevailing market rates until mid-2027, helping preserve margins across its multi-tenanted portfolio.
Distributable income increased 8.6% y/y. DI increased to SGD359.4mn. 1H26 DPU to remain broadly stable at 7.482 Scts (+0.1% y/y), in line with our estimates, forming c.50% of our FY26 projections. However, DPU on a h/h basis was c.0.8% lower, reflecting the enlarged equity base following the April 2026 equity fund raising.
The stronger distributable income was largely driven by acquisition contributions, while the equity raising has strengthened the balance sheet to support further acquisitions and redevelopment opportunities.
Portfolio occupancy on a like-for-like basis remained relatively stable. Portfolio occupancy moderated to 89.1% as at end-June 2026 from 90.5% in 1Q26, largely reflecting recently completed developments entering their initial lease-up phase. Excluding 27 IBP in Singapore and Summerville Logistics Center in the US, occupancy would have been 90.3%, implying that the underlying portfolio remained broadly stable.
Singapore occupancy declined marginally q/q due primarily to 27 IBP, while underlying occupancy would have remained broadly flat at around 90.6%. US occupancy fell 4.8 ppts following the completion of Summerville Logistics Center, although occupancy would have improved marginally to 87.9% excluding the new asset. Australia occupancy also softened due mainly to commencement of repositioning of Thomas Holt Drive.
Leasing momentum remained encouraging across newly completed assets. Geneo reached 81% occupancy with a further 13% under advanced negotiations, while 27 IBP secured c.19% committed occupancy and another c.20% under active discussions.
Upward shift in rental reversion guidance for FY26. Leasing fundamentals remained healthy with rental reversions of +8.5% for 1H26 and 5.2% during 2Q26. Following stronger-than-expected leasing outcomes, guidance for FY26 rental reversions has been revised upward to the high single-digit range from the previous expectation of mid-single digits. Leasing at 27 IBP has been particularly encouraging, with newly signed rents around SGD5.00 psf compared with surrounding market rents of c.SGD3.50 psf, reflecting the redevelopment's direct MRT connectivity, significantly enlarged GFA and higher quality specifications.
Approximately 9.6% of portfolio gross rental income remains due for renewal during the remainder of FY26, providing continued opportunities to capture positive mark-to-market rental growth should leasing demand remain supportive. Most notably, we understand that Shopee's lease renewal at 5 Science Park Drive has effectively been finalised and is expected to deliver attractive positive rental reversions.
Gearing and borrowing costs remained relatively stable. Aggregate leverage improved to 39.7% (improved 2.3 ppt q/q) following the equity fund raising, while the average cost of debt remained stable at 3.5% q/q. Only c.SGD160mn of SGD debt remains to be refinanced for the rest of FY26, limiting refinancing risk in the near term. Although gearing is expected to move temporarily above 40% following completion of the pending acquisitions, planned divestments should partially offset the increase over time.
Recently completed redevelopments and AEIs to drive earnings growth. Redevelopment projects are increasingly becoming meaningful earnings contributors. Geneo income contribution is expected to ramp up progressively through 2H26 and FY27, with occupancy targeted to reach the high-90% range by end-2026. Asking rents are already exceeding those achieved during the initial leasing phase, reflecting improving demand. At 27 IBP, management targets occupancy of 50-60% by end-2026 before reaching full stabilisation over the following two to three years. The redevelopment has nearly doubled the asset's GFA while significantly enhancing product quality.
Income contributions have also commenced from 5 Toh Guan, which is expected to achieve full occupancy by year-end with signed rents exceeding SGD2 psf. Looking further ahead, Acer Building (19 International Business Park) has emerged as the next potential redevelopment candidate, with existing tenants gradually being relocated ahead of a possible redevelopment where we could once again see higher plot ratio and enhanced amenities.
Almost SGD1.8bn in acquisitions announced and completed in 1H26. CLAR has announced and completed c.SGD1.8bn of acquisitions during 1H26, with the remaining c.SGD638mn expected to complete over the coming month. Alongside these acquisitions, management intends to complete an additional SGD300-500mn of divestments during 2H26, excluding Kim Chuan, primarily across Singapore and Europe. This balanced approach of acquisitions, redevelopment and capital recycling should help maintain funding flexibility while supporting long-term DPU growth without reliance on further equity issuance.
Earnings visibility continues to improve as recently completed acquisitions and redevelopment projects progressively contribute over the next 12 to 18 months. We expect Geneo, 27 IBP, 5 Toh Guan and the pending SGD638mn acquisition pipeline to become increasingly meaningful earnings contributors through 2H26 and FY27.
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