Ascendas REIT - RHB Invest 2016-12-06: Acquisition of Science Park buildings a positive move

Ascendas REIT - RHB Invest 2016-12-06: Acquisition of Science Park buildings a positive move ASCENDAS REAL ESTATE INV TRUST A17U.SI

Ascendas REIT - Acquisition of Science Park buildings a positive move

  • Ascendas REIT (AREIT) announced proposed acquisition of DSO National Laboratories buildings and DNV GL Technology Centre from sponsor Ascendas Land for a total purchase consideration of SGD 437.5m (incl. fees and transaction costs). 
  • The properties located along Science Park Drive are fully tenanted to DSO National Laboratories and DNV GL Technology Centre with a Weighted Average Lease Expiry (WALE) of 16.5 years. The properties are newly completed (weighted average age: 2.0 years) and has remaining land tenure of 64.7 years.
  • The acquisition is subject to unitholders approval in extraordinary general meeting ("EGM") as the purchase consideration accounts for 7.3% of its existing net tangible assets (exceeding the threshold of 5.0% NTA).

Our View: 

DPU accretive transaction with built-in rental escalations. 

  • The property has an underlying NPI yield of 6.0% and is marginally DPU accretive (< 1%). 
  • The purchase price represents at a 2% discount to average of two independent valuers valuations. The acquisition also comes with triple-net leases with built in rental escalation of 2.2% to 2.5% p.a.

Long-lease expiry provides stability. 

  • Ascendas REIT WALE will increase to 4.4 years from 3.7 years post acquisition. Portfolio exposure to favourable Business & Science parks segment will increase from 33% to 36%. MultiTenant Buildings will account for 74.5% of its portfolio up from 73.3% previously. 

Funding via combination of debt and equity. 

  • AREIT plans to fund the purchase by issuing SGD 100m in units to its sponsor and remaining through debt. There is an option that both vendor and purchaser can choose to elect cash payment instead of unit issue. Gearing is expected to increase from 34.2% to 36% assuming a combination of debt and equity funding. This still leaves comfortable debt headroom of SGD 500m for acquisitions (assuming 40% aggregate leverage). 

Maintain BUY with a TP of SGD 2.63. 

  • Our target price is derived based on two stage DDM model (COE -7.5%, Terminal Growth - 1.5%). We make no changes to our numbers pending discussion with management. 
  • We continue to be optimistic in the REIT due to its well diversified industrial exposure and are the best proxy to the highly-resilient business park space.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2016-12-06
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 2.630 Same 2.630