Ascendas REIT - UOB Kay Hian 2020-11-11: First Acquisition Finalised; Awaiting Details Of 2 Other Acquisitions

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Ascendas REIT - First Acquisition Finalised; Awaiting Details Of 2 Other Acquisitions

Ascendas REIT has launched an equity fundraising exercise to raise S$1.2b to partially finance three acquisitions.
- The first acquisition of two office properties in San Francisco is estimated to be accretive to DPU by 0.85% if funded by 50% equity and 50% debt.
- The second and third acquisitions involving data centres in Europe and suburban office property in Australia are subject to completion of negotiations with the vendor and satisfactory due diligence.
Maintain BUY. Target price: S$3.68.

Ascendas REIT (SGX:A17U) has proposed to acquire two office properties in San Francisco, 510 Townsend Street and 505 Brannan Street located in the South of Market (SoMa) sub-market, for US$560.2m (S$768.0m) from third-party vendors.
The properties were newly completed in 2017 (average age of only three years) and are fully leased to two high quality technology tenants, Stripe and Pinterest, for a long WALE of 9.1 years.
San Francisco was ranked the second top US tech city behind San Jose, which is located nearby. SoMa is the leading sub-market in San Francisco with one of the highest concentration of technology tenants (over 85%). The area is well served by trains from Caltrain Station (a commuter rail line between San Jose and San Francisco) and Bay Area Rapid Transit (BART) and MUNI metro (light rail system).

Stripe is a global technology company that builds and licenses online payment infrastructure, and its lease has a remaining lease term of 7.0 years.
Pinterest provides image sharing and social media services, and is headquartered at 505 Brannan Street, occupying 100% of the office space. Pinterest’s lease has a remaining lease term of 12.4 years. Both Stripe and Pinterest will become Ascendas REIT’s top 10 tenants. The two properties are under-rented by about 15%.

Ascendas REIT’s assets under management (AUM) will expand by 6% to S$13.7b. The acquisition will increase the exposure of Ascendas REIT’s US portfolio to the growing technology, biomedical and digital media industry from 65% to 75%. The proportion of freehold properties in Ascendas REIT’s portfolio will increase from 30.2% to 34.2%.
The structure of the leases is triple-net and have built-in rent escalations of 2-3% per annum. Overseas assets will increase from 30% to 34% of AUM, and US assets will expand from 10% to 15% of AUM.
Ascendas REIT intends to remain Singapore-centric with overseas assets in developed markets accounting for 30-40% of AUM.

The two properties provide net property income (NPI) yield of 4.8% post-transaction costs. Assuming that the proposed acquisition is funded by 50% equity and 50% debt and completed on 1 Apr 19, the annualised pro forma impact on FY19* DPU is expected to be an improvement of 0.129 cents (accretion of 0.85%).

Ascendas REIT has launched equity fundraising to raise gross proceeds of S$1,200m comprising:
1. private placement of 256.3m-264.4m new units at an issue price of S$3.026-3.121 to raise gross proceeds of S$800m; and
2. pro rata and non-renounceable preferential offering of up to 133.9m new units to raise gross proceeds of S$400m.
Proceeds from the equity fundraising will be utilised in the following manner:
1. S$390m to partially fund the acquisition of two office properties in San Francisco.
2. S$614m to partially fund the acquisition of a portfolio of data centres in Europe.
3. S$180m to partially fund the acquisition of a suburban office property in Australia.
The acquisitions in Europe and Australia are subject to completion of negotiations with the vendor and satisfactory due diligence (Ascendas REIT has not announced of details of these two acquisitions).

We have assumed that Ascendas REIT issues 126.5m new units at S$3.10 each to raise S$392.2m to partially fund the acquisition of two office properties in San Francisco (50% equity and 50% debt). We have not factored in contributions from acquisitions data centres in Europe and suburban office property in Australia.
We trim our Ascendas REIT's DPU forecast by 5.1% for 2020 and 3.5% for 2021 due to:
1. dilution from placement of new units in 4Q20; and
2. completion date of Grab’s new headquarters at one-north business park being shifted from 3Q20 to 2Q21.
Our DPU forecast for 2022 is relatively unchanged.
See Ascendas REIT Share Price; Ascendas REIT Target Price; Ascendas REIT Analyst Reports; Ascendas REIT Dividend History; Ascendas REIT Announcements; Ascendas REIT Latest News.
Maintain BUY on Ascendas REIT. We roll forward to 2021. Our target price of S$3.68 is based on DDM (COE: 6.0%, terminal growth: 1.8%).
Ascendas REIT's share price catalyst:
- Resiliency from business parks and high-specifications industrial segments.
- Contributions from development projects and asset enhancement initiatives.

Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2020-11-11

SGX Stock Analyst Report BUY MAINTAIN BUY 3.68 UP 3.650