ASCENDAS REAL ESTATE INV TRUST
A17U.SI
A serious contender in Australia
Acquiring A$1.01bn logistics portfolio in Australia.
3.0%-3.5% uplift to DPU ; further earnings diversification.
Upgrade to BUY on valuations, TP raised to S$2.45.
8th largest industrial landlord in Australia.
- Ascendas REIT is proposing to acquire a portfolio of 26 logistics properties in Australia for A$1,013m (S$1.013m, based on AUD-SGD exchange rate of 1.0) from the real estate arm of GIC and Frasers Property Australia Pty Limited through their controlled subsidiaries/ affiliates. This represents a 6.6% premium above the open market value as per JLL.
- The purchase consideration implies an initial yield of 6.4% (6.0% after transaction costs) which appears tight but we believe is a reflection of the portfolio’s young property age, prime location and quality tenant profile, which are mainly 3PLs and end users and lastly, a long WALE of 6.1 years.
- Upon completion of this deal, A-REIT will benefit immediately through having operational scale and earnings, and tenant diversity. With average rental escalations of 3.3% p.a., A-REIT is able to derive steady earnings growth in the medium term.
3% DPU accretion assumed (vs guidance of 3.0%-3.5%) helped by attractive funding rates.
- A-REIT intends to fund the acquisition through a mix of debt and new perpetual securities (60%:40% ratio); the latter is likely to be opportunistic, given the current appetite for yield in the capital markets. We assume debt funding cost of 3.5% and a coupon of 5.0% for the perpetual securities, which we believe are attractive.
- While returns from this acquisition is likely to be stable, upside will be driven by the Manager’s ability to raise occupancy (94.4% currently) from completion of discussions for 4 leases totalling 28k sqm of space, which could add another 0.2ppt to returns.
- In addition, we believe that a stabilisation in the current low AUD-SGD exchange rate will further enhance returns in the medium term.
Upgrade to BUY, TP raised to S$2.45.
- We see value emerging after recent stock retracement. While the market may frown on the prospects of A-REIT losing its pure-Singapore play status with this acquisition, we believe in the execution ability of the Manager and that the Manager will maintain a conservative stance towards forex hedging with overseas exposure (expected to be growing faster than SG) will be limited to within 20%-30% of its portfolio.
- With total returns of >15%, we upgrade A-REIT to BUY on a higher TP of S$2.45 as we factor in this acquisition.
Derek Tan
DBS Vickers
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Rachael TAN
DBS Vickers
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http://www.dbsvickers.com/
2015-09-21
DBS Vickers
Analyst Report
2.45
Up
2.30
