Ascendas REIT - CGS-CIMB Research 2021-05-05: Acquiring Balance 75% Stake In Galaxis

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ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Ascendas REIT - Acquiring Balance 75% Stake In Galaxis

• Ascendas REIT has acquired the remaining 75% stake in Galaxis for S$534.4m.
• The purchase is partly funded by a S$420m private placement exercise.
• Reiterate ADD with a higher DDM-based target price of S$3.31.

Ascendas REIT buys remaining 75% stake in Galaxis

• Ascendas REIT (SGX:A17U) announced the purchase of the remaining 75% stake in Galaxis from its sponsor for a purchase consideration of S$534.4m or at an initial property yield of 5.3% (post transaction cost). This is based on an agreed property value of S$720m (on a 100% basis), which is at a 2% discount to the average of valuers’ valuation.
• Galaxis is located in the strategic one-North area, which houses key growth sectors such as bio-medical sciences, infocomm technologies, R&D institutes and start-ups. The property has a net lettable area of 60,935 sq m and enjoys a high occupancy of 98.6% with a weighted average lease expiry of 2.4 years.

Boosting exposure to Singapore business parks segment

• The purchase will expand Ascendas REIT’s asset base to S$15.79bn and increase its exposure to business parks to 49% of AUM. This will likely enable Ascendas REIT to cater to demand from the technology, biomedical, R&D and new economy industries.
• Post the acquisition, rental contributions from infocomm technology and electronics tenants are expected to rise to 18.3% of portfolio rental income, according to management. It will also deepen its focus in Singapore to 62% of AUM from 59% previously.

Acquisition is partly funded by fund raising, deal is DPU accretive

• The total acquisition cost of S$543.8m will be funded by a S$420m fund raising exercise via a private placement of 142.664m new Ascendas REIT units at S$2.944 as well as by taking on its 75% stake of existing bank loans totaling S$161.6m.
• The purchase is DPU- and book NAV-accretive and could raise DPU and book NAV by 0.4% and 0.9%, respectively, based on management’s proforma estimates.

Reiterate ADD rating

• We tweak our Ascendas REIT's FY21-23F DPU estimates up by 0.26-0.4% to consolidate the additional contributions from Galaxis (previously an associate) as well as to bake in the impact of the placement exercise. Accordingly, our DDM-based target price for Ascendas REIT is raised to S$3.31.
• See
  • Ascendas REIT's Share Price,
  • Ascendas REIT's Target Price,
  • Ascendas REIT's Analyst Reports,
  • Ascendas REIT's Dividend History,
  • Ascendas REIT's Announcements,
  • Ascendas REIT's Latest News.
• We continue to like Ascendas REIT for its diversified and resilient portfolio and strong inorganic growth visibility.
• Potential catalysts include faster-than-expected global recovery and accretive new acquisitions.
• Downside risks include a protracted economic downturn.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-05

SGX Stock Analyst Report ADD MAINTAIN ADD 3.31 UP 3.300