CapitaLand Ascendas REIT: Raise SGD 450 Million for Acquisitions, Redevelopment, and Debt Repayment

CapitaLand Ascendas REIT A17U, or CLAR, is looking to raise SGD 450 million via private placement to fund acquisitions in Singapore and Europe, redevelop a logistics property in Singapore, and repay existing debt facilities. Management guided that the trust’s aggregate leverage will improve to 35.6% from 38.2% as of March 31 after the private placement but should eventually rise to 37.6% when the proceeds are fully used. We are positive on this move as it is distribution per unit, or DPU, accretive and strengthens the trust’s balance sheet at a time where near-term interest rates are elevated. Our fair value estimate remains unchanged at SGD 3.06 per unit, but we have reduced our 2023 DPU estimate by 4.5% to SGD 0.1567 from SGD 0.164 to factor in a higher cost of borrowing and take in to account the advanced distribution amount of SGD 0.06141 for the period of Jan. 1 to May 24, which came in below our expectation. Nevertheless, our long-term thesis of CLAR remains the same, and we expect the trust to continue to grow its DPU via a mixture of active leasing, asset enhancement initiatives, and capital recycling.

The trust is acquiring Seagate’s research and development facility in Singapore for SGD 232.4 million. The asset will be leased to Seagate for 10 years with an option to renew for another 10 years. There is a built-in rental escalation of 2.5% per year, and management expects the initial net property income yield to be 7.8%. While Seagate is currently facing near-term business headwinds—having announced another round of layoffs and restructuring to achieve USD 350 million in cost savings—we are still positive on this deal as it should be easy to find a replacement tenant given the asset’s quality and good location even if Seagate does not renew the lease. We also think that the attractive yield of 7.8% reflects the short land tenure of 20 years, and we do not expect the trust to achieve significant capital appreciation on this asset over the long term.