CapitaLand Ascendas REIT Earnings: Adding Value Through Redevelopment; Units Fairly Valued

CapitaLand Ascendas REIT’s A17U first-half results were in line with our expectations. Gross revenue and net property income improved 7.7% and 6.7% year on year to SGD 718 million and SGD 509 million, respectively. The NPI growth was mainly driven by acquisitions made in 2022 and 2023, partly offset by higher utility expenses for the trust’s Singapore properties. Distribution per unit fell 2% year on year to SGD 0.07719 due to higher borrowing costs and an enlarged unit base. Management raised its rental reversions guidance for 2023 to the high single digits from the midsingle digits after another quarter of strong leasing results. As we have already factored in a robust rental growth assumption, we only made minor adjustments to our assumptions and kept our fair value estimate unchanged at SGD 3.06 per unit. Trading at a 2023 dividend yield of 5.5% based on the last closing price, the units appear fairly valued to us.

CLAR’s portfolio occupancy was unchanged at 94.4% versus the previous quarter, with improvements at its Australian portfolio offset by a slight decline in occupancy rates at its U.S. portfolio. Management said the U.S. office market remains challenging, especially for its assets in Portland and Raleigh, although they make up only less than 7% of its overall portfolio. Given the trust’s diversification across Singapore, the United States, Europe, and Australia, management said it is normal for different segments of its portfolio to experience different market cycles. While the U.S. office market is going through a downcycle, the trust’s Singapore logistics assets are enjoying an upcycle, delivering a 39.1% rental reversion for the second quarter.