Ascendas REIT - OCBC Investment 2016-06-03: Continued capital recycling

Ascendas REIT - OCBC Investment 2016-06-03: Continued capital recycling Ascendas REIT ASCENDAS REAL ESTATE INV TRUST A17U.SI 

Ascendas REIT: Continued capital recycling 

  • Proposed divestment of business park in China 
  • Key focus will be on Singapore and Australia 
  • BUY with revised S$2.56 FV 

Divesting its Beijing business park asset 

  • Ascendas REIT (A-REIT) recently announced that it has entered into a Sale and Purchase agreement with Cova Beijing ZPark Investment Ltd, whereby it will divest its Ascendas Z-link property to the latter at an attributable property value of RMB760m (~S$160m). This is a business park asset located in Beijing, China, and was acquired by A-REIT from its sponsor in Oct 2011. 
  • The proposed divestment consideration comes in favourably as compared to the asset’s valuation of RMB690 (~S$144.7m), as at 31 Mar 2016, and is also significantly above its acquisition price of RMB300m. 
  • Based on our estimates, the property was divested at a cap rate of ~4.4%, which we view as an attractive exit yield. Net proceeds after tax and divestment costs are expected to be S$135m, which would be used to finance future acquisitions, repay existing debt and/or fund its general corporate and working capital needs. 
  • Completion of the divestment is estimated to happen in 1HFY17. 

Capital recycling strategy in place 

  • A-REIT’s proposed divestment reflects a continuation of its capital recycling strategy in a bid to refresh its portfolio and extract value for unit-holders. 
  • In FY16, management successfully sold two of its properties, 26 Senoko Way and BBR Building, at a combined sales price of S$38.7m, or 13.5% above their book value. 
  • On the other hand, A-REIT acquired S$1.5b of assets, including making its maiden entry into the Australian logistics market. 

Maintain BUY 

  • Looking ahead, we believe A-REIT’s key focus geographically would be on Singapore and Australia. For the former, we believe the main area of growth would come from business and science park assets. 
  • In our view, A-REIT would be able to tap on its sponsor’s robust pipeline of assets within this segment. 
  • Upcoming supply of business parks in Singapore from 2Q-4Q 2016 is also relatively limited at 139,000 sq m, representing just 5.7% of total upcoming factory and warehouse space supply. 
  • As we fine-tune our assumptions slightly, we trim our FY17 and FY18 DPU forecasts by 0.8% and 1.1%, respectively, and derive a revised fair value estimate of S$2.56 (previously S$2.58)
  • Maintain BUY.

Wong Teck Ching Andy CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-06-03
OCBC Securities SGX Stock Analyst Report BUY MAINTAIN BUY 2.56 Down 2.58