Ascendas REIT - CGS-CIMB Research 2018-09-07: Private Placement To Fund Inorganic Growth

ASCENDAS REAL ESTATE INV TRUST SGX:A17U

Ascendas REIT - Private Placement To Fund Inorganic Growth

Ascendas REIT has announced a private placement to raise S$452m to part-fund a new acquisition in UK and development project in Singapore, as well as to pare down debt.
Portfolio size is expected to increase to S$11.4bn post transactions.
Gearing would be slightly higher at 37.7% after acquisitions and placement exercise.

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Ascendas REIT has announced a private placement of 178m new units at S$2.54 apiece, to raise S$452.1m proceeds to part-fund the proposed purchase of a second UK logistics portfolio (c.S$250m), the proposed development of a new built to suit (BTS) property in Singapore (S$109m), as well as to pare down debt (S$87.1m). The price of S$2.54 is at a 6.1% discount to the VWAP of 6 Sep.
We maintain our ADD call and DDM-based Target Price of S$2.89, pending more details.

No details of both transactions have been shared as yet. However, we note that the post-transaction AUM is expected to expand to S$11.4bn from S$10.8bn (after the recent UK acquisition and Singapore divestment), implying S$639m worth of asset purchases.
Post placement and acquisitions, Ascendas REIT’s gearing would be slightly higher at 37.7% compared to the end-Jun 18 level of 35.7%.

Ascendas REIT indicated that the high quality of the properties in the second logistics portfolio would further strengthen the Ascendas REIT’s positioning and platform in the UK as well as enlarge its tenant base with additional quality tenants.
We expect the Singapore BTS development opportunity to also enable Ascendas REIT to grow its Singapore presence at a higher-than-market yield.

We leave our estimates unchanged for now, pending more details on the acquisitions.
In terms of sensitivity, assuming a 5-6% acquisition/development yield and based on asset value of S$639m, we reckon our DDM-based Target Price would remain relatively flat after adjusting for the private placement units. Hence, we maintain our current FY19-21F DPU estimates and Target Price of S$2.89 for now.
We continue to like Ascendas REIT for its size and stability. Re-rating catalysts could come from more inorganic growth potential, while slower-than-expected rental recovery is a key downside risk.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://research.itradecimb.com/ 2018-09-07

SGX Stock Analyst Report ADD Maintain ADD 2.890 Same 2.890