• Keep BUY and SGD3.20 TP, 21% upside and 6% yield. CapitaLand Ascendas REIT's 2H/FY24 financials were in line, with DPU back in growth mode. Portfolio occupancy was up QoQ while rent reversion remained strong in low double digits with stable valuation. Financing costs too are near the peak. Key briefing takeaways were CLAR's sharpened focus on asset development and redevelopments/enhancements. We are positive on this move as we expect it to unlock significant untapped value, enhance returns and diversify earnings. CLAR is one of our top industrial S-REIT picks.
• Planned redevelopment of LogisHub @ Clementi with the redevelopment expected to transform the asset from a cargo lift warehouse to a modern seven-storey ramp-up asset with cold storage facility. The move is also expected to nearly double the GFA of the asset from plot ratio intensification and achieve high green rating for the asset. Redevelopment is expected to commence end-2025 and complete by 1Q28. Estimated cost of the redevelopment is SGD136.2m with ROI expected to be in the high single digits. The move follows FY24 forward purchases of two logistics assets in the US (Charleston and Indianapolis) for SGD250m, which are expected to offer a stabilised NPI yield of 7.6%, higher than its existing portfolio. CLAR guided for potential SGD1.5bn of redevelopments over three years.
• Potential to unlock value from Singtel data centre assets, with Telepark (valued at SGD270m) likely to be vacated by Apr 2025. Management highlighted the assets attractive location next to Tampines MRT as well as that the underlying commercial land lease provides good redevelopment potential for the asset, including possibly divesting it. The remaining lease expiries are staggered till 2030, posing limited downside risk to near-term DPU. Welwyn Garden City, UK has been decommissioned in Jun 2024 and CLAR is currently working on securing a new tenant as well as regulatory approvals for the development of a 60MW data centre.
• FY24 rent reversion of +11.6% (FY23: +13.4%) with positive double-digit rent growth seen across all markets. For FY25, CLAR guided for positive mid-single digit reversion which we believe is conservative.
• Financing costs stable QoQ at 3.7%, and for FY25 it is likely to rise another 10-20bps before tapering off. Portfolio valuation was stable YoY as weakness in the US (-6.6%) and Australia (-4.5%) were offset by gains from Singapore (+2.3%). Utility costs are expected to be lower and could slightly result in higher NPI margin.
• FY25/26F DPU tweaked lower by 1% and we introduce FY27 forecasts and rollover our DDM valuation. Our TP includes a 6% ESG premium.

Source: RHB Research - 10 Feb 2025