ASCENDAS REAL ESTATE INV TRUST
A17U.SI
Ascendas REIT - Divestment Of Light Industrial Building A Positive
- A-REIT announced the divestment of its 10WL property at 17% and 61% higher than its latest book value and purchase price respectively.
- The move is positive as the building has been vacant since Dec 2016, after the exit of its sole tenant. Post divestment, gearing would dip marginally to 33.7%, offering > SGD1bn of acquisition debt headroom.
- We like A-REIT’s strategy of divesting its non-core older assets and acquiring assets with longer WALE and lease tenures in Australia and Singapore.
- A-REIT is our Top large-cap Pick in the S-REIT space. Maintain BUY with unchanged TP of SGD2.73.
What’s new?
- Ascendas REIT (A-REIT) announced the divestment of its 10 Woodlands Link (10WL) (formerly NNB Building) property to Sengkang Import & Export Pte Ltd for SGD19.3m. The buyer is a licensed importer of rice and various food products. The property is located in Woodlands East Industrial Estate, and is a light industrial building comprising a three-storey warehouse.
- The property has been vacant since Dec 2016 after the expiry of its single tenant’s lease. The building will be sold on as-is basis.
- 10WL has a remaining land lease tenure of about 38.7 years. The transaction has been approved by JTC Corp and is expected to be completed by 3Q17.
Our view
- The divestment is positive and in line with A-REIT’s strategy of recycling capital. The sale price is 17% and 61% above its latest book value and original purchase price (2005) respectively, which we deem as highly attractive given the current market conditions.
- The pro-forma impact (assuming the divestment had completed on 1 Apr 2016) on A-REIT’s FY17 NPI and DPU is very small, at SGD0.87m ( < 0.2%) and 0.01 cents respectively.
- Gearing would be marginally lowered to 33.7% from 33.8%, assuming proceeds are used fully for debt repayments.
- We like A-REIT’s efficient capital recycling strategy of divesting non-core assets and acquiring assets with long weighted average lease expiry (WALE) and lease tenures. In FY17, A-REIT divested SGD441.6m worth of properties and acquired SGD565.6m of assets in Singapore and Australia.
- Maintain our BUY recommendation with unchanged TP of SGD2.73. Our DDM-derived TP is based on a CoE of 7.5% and terminal growth of 1.5%. The stock currently offers FY18F-19F yields of 6.1%/6.2% respectively.
Vijay Natarajan
RHB Invest
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http://www.rhbinvest.com.sg/
2017-05-31
RHB Invest
SGX Stock
Analyst Report
2.730
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