Ascendas REIT - Maybank Kim Eng 2015-09-21: Mildly-accretive acquisition

ASCENDAS REAL ESTATE INV TRUST A17U.SI 

Mildly-accretive acquisition 

  • Areit has acquired 26 logistics properties in Australia for AUD1.013b. 
  • We raise FY3/17-18 DPU by 1.3-4%. 
  • Maintain HOLD as we believe positives are in its price. 
  • Our TP climbs to SGD2.08 from SGD2.05, still based on a 7.25% yield target for FY3/17 DPU. 

What’s New 

  • Areit has proposed to acquire 26 logistics properties in Australia for AUD1.013b, at an NPI yield on cost of 6.4%. Including acquisitionrelated costs, all-in costs would be AUD1.077b. With an average age of only 6.4 years, the assets are located within 40km of their respective city CBDs and are freehold. 
  • Mainly single-tenanted and on triple-net leases, with built-in annual rent escalations of 3.3% and a weighted average lease of 6.1 years. 
  • Areit aims to fund this with 60:40 debt in AUD (cost of debt c.3.5%) and perpetual securities (c.4.7% yield). 
  • Portfolio occupancy is 94.4%. This could reach 98.3% if negotiations with prospective tenants are successful. 
  • The transaction will bring Areit’s overseas contributions to 14% of its asset value from 4%, in line with its investment mandate to bring it to 20-30%. 

What’s Our View 

  • Areit is paying a 6.6% premium to the assets’ open-market value. In return, the acquisition has turned it into the eighth-largest logistics landlord in Australia. 
  • We like the portfolio’s freehold tenures and fixed rent escalations which are higher than the usual 2% in Singapore. 
  • What we are less keen on its method of financing. Had it opted totally for debt funding, we reckon our FY3/17-18 DPU could be 15.4-15.8 cts instead of 15.1-15.5 cts on the 60:40 structure. 
  • We do not expect DPU growth in FY3/16 due to SGD64m in acquisition-related costs. Applying our 7.25% yield target to Areit’s FY3/17 DPU gives us a new TP of SGD2.08.



Joshua Tan Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-09-21
Maybank Kim Eng Analyst Report HOLD Maintain HOLD 2.08 Up 2.05


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