CapitaLand Ascendas REIT: Business Update in Line; Extracting Maximum Value from Asset Sale

CapitaLand Ascendas REIT’s A17U, or CLAR’s, first-quarter business update was largely in line with our expectations. Portfolio occupancy remained relatively unchanged at 94.4%, as improvements in occupancy at its Singapore and European portfolio were offset by occupancy declines in Australia and the United States. The trust also continues to register strong positive rental reversion numbers of positive 11.2%, positive 11.3%, and positive 14.3% for its Singapore, U.S., and Australia portfolio, respectively. Nonetheless, management guidance is for rental reversions to be in the positive mid-single-digit range, implying a slowdown in the following quarters.

With no major surprises, we retain our fair value estimate of SGD 3.06 per unit. We think the trust is fairly valued at the current price and encourage investors to wait for a better entry point.

The trust is divesting KA Place, in Singapore, for SGD 35.4 million. The selling price is more than three times its original purchase price back in 2005 of SGD 11.1 million, and 55% above its last valuation in December 2022 of SGD 22.8 million. We are positive on this transaction given our view that management is extracting maximum value from the divestment based on the premium over its last valuation. KA Place is also a relatively small and aging asset with a short remaining leasehold tenure of 35 years. Although the deal is small, we think that the divestment proceeds will come in handy for management to repay borrowings or recycle into higher-yielding investments.