Ascendas REIT - RHB Invest 2015-12-10: It Is Business This Time

Ascendas REIT - RHB Invest 2015-12-10: It Is Business This Time Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI 

Ascendas REIT (AREIT SP) - It Is Business This Time 

  • We think the One@Changi City acquisition is fairly priced, as it stands to benefit from close proximity to existing/future MRT stations and has rental growth potential (as most of the leased spaces are under the market rent rate) – Ascendas REIT is raising equity too (amounting to SGD408m), mainly to fund this exercise. 
  • Thus, we lower our FY16F-17F DPU by 0.6-0.9%. 
  • Maintain BUY with a lower SGD2.50 TP (from SGD2.55, 5% upside), implying 11.5% total returns. 

 Third acquisition for Ascendas REIT this year, this time a business park. 

  • Ascendas REIT has announced the acquisition of a 9-storey business park building, One@Changi City, for a price consideration of SGD420m. This translates into a yield of approximately 6%. 
  • The asset would be acquired from both parent Ascendas Development Pte Ltd and Frasers Centrepoint Ltd, which own a 50% stake each. The purchase is to be half funded by issuance of units, with the balance paid via cash. 

 Transaction is fairly-priced, considering the great locality. 

  • We think that at a 6% cap rate valuation is reasonably-priced. Bear in mind that the asset is poised to benefit from its close proximity with an existing as well as future mass rapid transit (MRT) stations. 
  • To put it in perspective, the average pricing of the independent valuers is SGD438m, representing a 4.2% discount to the average valuation. 

 Private placement priced fixed at SGD2.223 – raising a total of SGD408m. 

  • Ascendas REIT mentioned that the gross proceeds of at least SGD408m from the equity fundraising exercise would be mainly used: 
    1. for the acquisition of One@Changi City (55%), 
    2. to partially fund a potential acquisition of a logistics property in Australia (20%), and 
    3. be used for funding debt repayments and future acquisitions (24%). 

 Maintain BUY with a lower SGD2.50 TP (from SGD2.55). 

  • As we factor in the acquisition and the larger unit base, we think that it would not be yield-accretive. In view of this, we lower our FY16/FY17 (Mar) DPU forecasts by 0.6%/0.9% respectively, resulting in a lower SGD2.50 TP. 
  • We maintain our BUY recommendation, as we still think there is potential upside base to our valuation. 
  • In addition, we like Ascendas REIT’s exposure to the business park space.

Ivan Looi RHB Research | Ong Kian Lin RHB Research | http://www.rhbinvest.com.sg/ 2015-12-10
RHB Research SGX Stock Analyst Report BUY Maintain BUY 2.50 Down 2.55