Ascendas REIT - DBS Research 2019-10-04: Nabs Melbourne Asset, With Nissan As Anchor Tenant


Ascendas REIT - Nabs Melbourne Asset, With Nissan As Anchor Tenant

  • Ascendas REIT's forward purchase of 254 Wellington Road accretive to DPUs.
  • Target return of 5.7%-5.8% appears tight but anchored by long lease to Nissan’s new HQ.
  • Deal within our forecast of S$300m target acquisition.
  • BUY call maintained.

What’s New

Forward purchase of suburban office in Mulgrave, Melbourne for A$100.9m.

  • ASCENDAS REIT (SGX:A17U) reportedly acquired its 4th suburban office asset in 254 Wellington Road, Mulgrave, Melbourne, Australia for A$110.9m. See Ascendas REIT's announcements
  • Ascendas REIT will enter into an agreement with the Vendor ESR FPA (Wellington Road) for the purchase of the freehold land and subsequent development of the suburban office building on the site which will achieve practical completion by 2Q2020.
  • The property to be constructed is well-located in the Monash Technology Precinct and seen as an emerging suburban office market.
  • The property will be 65% pre-committed to Nissan for 10 years, upon completion. The lease will have an annual escalation of 3.0% and the remaining vacant space will be marketed by the vendor which will provide a 3-year guarantee on any remaining space.

A new Nissan HQ implies strong stickiness.

  • Media reports state that the building (254 Wellington Road) is part of a planned S$400m business park of 60k sqm net lettable area (NLA), consisting of 4 office buildings which will be built by the vendor ESR FPA (ESR and Frasers Property Australia (FPA)). The development proposal for the conversion of the 4.67 hectare site was approved recently.
  • We understand that anchor tenant Nissan will be relocating its headquarters (HQ) to 254 Wellington Road, moving from another property south-east in Dandenong South, which they occupied for more than 40 years since 1977.

Initial yield of 5.8% (5.7% post-transaction cost); accretive to DPUs.

  • We believe that there are merits in the acquisition. This forward purchase opportunity offers attractive returns in an otherwise tight market. While Ascendas REIT has moved up the risk curve in its search for higher returns, and it appears tighter at 5.8%, we remain comfortable given the property’s location and long lease tenure.
  • While the deal’s impact is minor, we like the fact that Ascendas REIT continues to “add duration” to its portfolio weighted average lease expiry (WALE) and see positives from having a quality tenant in Nissan on a long lease.
  • We believe that the remaining vacant space will likely be taken up over time, with any near term downtime covered by the rental guarantee.
  • The acquisition will be funded by debt and is estimated to be marginally accretive to Ascendas REIT. See Ascendas REIT's dividend history.
  • BUY call and Target Price of S$3.40 maintained.

Derek TAN DBS Group Research | Rachel TAN DBS Research | https://www.dbsvickers.com/ 2019-10-04
SGX Stock Analyst Report BUY MAINTAIN BUY 3.400 SAME 3.400