Front runner in the ESG race
Highest ESG 2.0 score among industrial REITs
Under our expanded ESG 2.0 scoring, CAREIT attains an above-average score of 67 – the highest among industrial S-REITs. CAREIT has set ambitious targets validated by the Science Based Targets initiative, and well executed on its green financing and green certification goals. Disclosure on Scope 3 emissions and further improvements in board diversity could drive a higher score in our view. New-economy assets of SGD13.4b (81% of AUM) are set to underpin CAREIT’s continued growth trajectory. Maintain BUY and DDM-based TP of SGD3.50 (COE: 6.2%, LTG: 2.0%).
ESG in the right direction
We note CAREIT’s consistent improvements in sustainability metrics. CAREIT has targeted to achieve a green rating for all owned and managed assets by 2030, and achieved a c.47%/30% in certifying managed/owned GFA by end-2021. In line with CapitaLand’s 2030 Sustainability Master Plan, CAREIT is set to reduce Scope 1 and 2 GHG emissions by 78% by 2030 (vs. 2008 baseline), of which 54% has been realized. Nonetheless, further disclosure in Scope 3 GHG emissions from tenant energy consumption and third-party managed assets could help drive a higher score.
Green financing instruments in its toolkit
CAREIT stands out to us as a green-financing champion among industrial SREIT, with c.SGD1.2b (c.19% of its total borrowings of SGD6389m) funded via instruments such as green bonds, green loans and green perps in FY21. Its green financing instruments are subject to conditions that either limit loan proceeds to fund only green projects, or tag margins to CAREIT’s ESG performance including ratings. Notably, performance on targets such as green certification, renewable energy and green financing forms part of
management’s remuneration appraisal.
Strong balance sheet underpins growth
CAREIT has a solid balance sheet prudently managed with c.36.7% leverage, and c.2.1% cost of borrowing as of 1H22, after the addition of seven US logistics properties (for SGD133.2m at 5.3% NPI yield). CAREIT acquired 1 Buroh Lane cold storage in 3Q22 (for SGD191.9m at 7.0% NPI yield). We believe growth is well supported by its continued AUM expansion.
