Ascendas REIT - Maybank Kim Eng 2018-10-01: Scaling Up In The UK

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U) | SGinvestors.io ASCENDAS REAL ESTATE INV TRUST SGX:A17U

Ascendas REIT - Scaling Up In The UK


Meaningful Add-On; BUY

  • Ascendas REIT’s UK growth momentum has rapidly gained traction with a second larger portfolio acquisition following its first deal at end-July. These 26 logistics properties should deepen its geographical presence in the West Midlands, the UK’s largest distribution and warehousing hub. 
  • The positive asset attributes:
    1. freehold land;
    2. long WALEs of 9.1 years; and
    3. high-quality tenancies
    which should strengthen Ascendas REIT’s overall portfolio profile.
  • This deal was anticipated to follow its 7 Sep SGD452.1m equity fund-raising, and while marginally DPU accretive, reaffirms growth visibility in its overseas diversification efforts.
  • We keep our forecasts unchanged as the deal is expected to be completed in FY3Q19 (Oct-Dec). Reiterate BUY to our DDM-based SGD3.05 Target Price (COE: 7.0%, LTG: 1.5%).


A second UK portfolio deal

  • Ascendas REIT will acquire 26 UK logistics properties for GBP257.5m (SGD459.2m) from Griffin Group UK Holdings and its subsidiaries. The properties, all except for one, are sited on freehold land in established industrial areas within the West Midlands, North West England, South East England and Yorkshire, and the Humber.
  • The deal portfolio, including rental guarantees, is 100% occupied with physical occupancy at 92.4%. Its WALE of 9.1 years will extend Ascendas REIT’s portfolio WALE from 4.3 years to 4.5 years. The properties are expected to complement its initial 12-property UK portfolio valued at GBP207.3m (SGD373.2m).
  • The initial deal, with similar portfolio attributes marked its entry into Europe and was completed on 16 Aug.



~ SGinvestors.io ~ Where SG investors share

Deal expected after EFR, slight DPU accretion

  • The transaction is expected to generate an NPI yield of 5.54% and 5.39% pre- and post-transaction costs, respectively in its first year. 


Swing Factors 


Upside 

  • Earlier-than-expected pick-up in leasing demand driving improvement in occupancy. 
  • Better-than-anticipated rental reversion trend. 
  • Accretive acquisitions. 

Downside 

  • Prolonged slowdown in economic activity could reduce demand for industrial space, resulting in lower occupancy and rental rates. 
  • Termination of long-term leases contributing to weaker portfolio tenant retention rate. 
  • Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations. 





Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-10-01
SGX Stock Analyst Report BUY Maintain BUY 3.050 Same 3.050



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