Ascendas REIT - Maybank Kim Eng 2016-01-06: Value is being created

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Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI 

Ascendas REIT (AREIT SP) - Value is being created 

Overall, acquisitions are being accretively financed 

• AREIT was busy during the holidays raising new equity to fund two acquisitions. 
• By itself the exercise was dilutive, causing us to cut our FY3/17-18 DPUs by 2.4% and 4.5%. But the 6% blended NPI yield for all its acquisitions last year has been accretively financed by a blended cost of 5%, while its aggregate leverage drops from 39% to 37%. 
• Overall, value is being created and balance-sheet risk reduced. 
• Nonetheless, our DPU cut lowers our TP from SGD2.28 to SGD2.23, giving us 1% downside risk; maintain HOLD. 
• We still think AREIT and MINT (HOLD, TP SGD1.53) are the safer SREITs to hold on grounds of valuations and supply: see “SREITs, Industrials: Cleanest Dirty Shirt, 30th Nov 15” . 

Dec’s acquisitions were not accretive… 

• AREIT last month raised SGD610.5m by issuing 275m new units via: 
  1. a SGD200.1m placement (SGD2.223 per unit); 
  2. a SGD200.4m preferential offering (SGD2.218); and 
  3. SGD210m in consideration shares to the vendor (SGD2.223) 
  to fund the purchases of business park One@Changi City for SGD438.9m and a logistics facility in Sydney for SGD82m. 
• The NPI yields of One@Changi and the logistics facility are 5.9% and 6.6% respectively, versus the new units issued at a blended yield of 6.8%. 
• As mentioned, by itself, the exercise was not DPU accretive. 

… but the acquisitions last year as a whole were 

• However, we have to see Dec’s acquisitions in terms of AREIT’s full-year acquisition/financing activities. 
• Sep15’s SGD1.1b acquisition of the Aussie logistics portfolio had a NPI yield of 6%, financed at a blended cost of 4% (60:40 3.5% debt: 4.75% perps). Taking this into consideration with Dec’s acquisitions sees a blended target portfolio NPI of 6% (Aussie logistics and One@Changi), financed at 5% (debt, perps, and new equity). 

Look forward to DPU growth 

• On top of this, investors can look forward to organic upside from One@Changi as 92% of the NLA is 14% below market rent, while the Aussie portfolio has +3.3% rent escalations pa. 
• AREIT has also been steadily ramping up portfolio occupancy over the past five quarters despite a weak economy and an oversupplied environment. 

Joshua Tan Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-01-06

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 2.23 Down 2.28