Ascendas REIT - RHB Securities 2015-09-22: Makes Maiden Acquisition In Australia

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ASCENDAS REAL ESTATE INV TRUST Ascendas REIT A17U.SI 

Ascendas REIT - Makes Maiden Acquisition In Australia 

• Maintain BUY with a TP of SGD2.35 (5% upside), implying a total return of 12.3%. Ascendas REIT announced its maiden acquisition in Australia involving a portfolio of 26 industrial assets across four major cities. 
• The acquisition is expected to boost its DPU to 3.5% from 3.0%, while the REIT could be funding the purchase via debt and perpetual securities. We think that the price tag for the acquisition is reasonable and see potential growth as occupancy levels improve in the near term. 

 Maiden acquisition in Australia. 

• Ascendas REIT has made its first acquisitions in Australia – a portfolio of 26 industrial assets across four major cities (Sydney, Melbourne, Brisbane and Perth) for a total sum of AUD1.0bn (SGD1.0bn), which equals a 4.6% NPI yield. We note that the acquisition was purchased from the real estate arm of Government of Singapore Investment (GIC) and Frasers Property Australia, previously known as Australand. Its portfolio occupancy rate is at a healthy 94.4%, with a long weighted average lease expiry (WALE) of 6.1 years. 

 Acquisition price is reasonable. 

• While the acquisition was not priced attractively for Ascendas REIT, the amount fell within a reasonable range, as: 
  1. the portfolio’s mean building age is young, at 6.4 years, 
  2. it has blue-chip tenants such as Westfarmers (one of Australia’s largest retailers), Mondelex (formerly Kraft Foods) and Nestle, and 
  3. tenant leases are based on a triple net lease structure. 

 How does this impact the giant industrial landlord overall? 

• We estimate a DPU accretion of approximately 3.0-3.5% based on a capital structure of approximately 60:40 in debt and perpetual securities. In addition, we see potential upsides on this acquisition from: 
  1. occupancy rate improvements, and 
  2. a potential expansion of 28,430 sq m. 

 Maintain BUY on a still-attractive stock. 

• The REIT has SGD23.7m and SGD101.6m worth of development and asset enhancement works respectively due for completion by 2Q16 to buffer downside risks. 
• We like Ascendas REIT for its well-diversified income stream and business park exposure. It is also an industrial bulwark with a A3-credit rating, that allows it to make longer-term borrowings vs its peers. 
• Maintain BUY, with a TP of SGD2.35.

Ivan Looi RHB Securities | Ong Kian Lin RHB Securities | http://www.rhbgroub.com/ 2015-09-22

RHB Securities Analyst Report BUY Maintain BUY 2.35 Same 2.35