Ascendas REIT - Deepening its science park presence
- Targeting more DPU accretive acquisitions.
- Positive portfolio metrics.
- BUY with higher S$2.72 Fair Value.
Seeking to increase its exposure to Science Park space
- Ascendas REIT (A-REIT) recently proposed to acquire the leasehold interest in the property located at 12, 14 and 16 Science Park Drive from its sponsor.
- The property comprises three builtto-suit Science Park buildings held under a single land title. Two of the buildings are leased to DSO National Laboratories, Singapore’s national defence research & development organisation, while the third building is leased to DNV GL Singapore Pte Ltd, a Norwegian risk management company, for its South East Asia regional headquarters. The purchase consideration of S$420m comes in below the two independent valuations of S$428.8m and S$430.0m.
- Including acquisition fees, stamp duties and other professional fees, the total acquisition cost is estimated to be S$437.5m. Of this, the acquisition fee (S$4.2m) would be funded by the issue of units, S$100m would be satisfied by the issue of Consideration Units to the vendor and the balance would likely be debt funded.
Acquisition to boost A-REIT’s portfolio metrics
- We are positive on this transaction as it would boost A-REIT’s portfolio WALE to 4.4 years from 3.7 years and the triple-net leases also have weighted built-in rental escalations of 2.2% to 2.5% per annum. The property is expected to generate a NPI yield of approximately 6.3% (before acquisition costs) and 6.0% (post-acquisition costs) in the first year of ownership.
- In addition, we believe demand and supply dynamics for the Science Park segment (classified under Business Park category by URA) are relatively more positive within the industrial sector.
- According to statistics from the URA, out of the 3.0m sqm of upcoming industrial supply from 4Q16 to end 2017, only ~0.6% will be contributed by business parks.
- Maintain BUY on A-REIT, but with a higher fair value estimate of S$2.72 (previously S$2.67) as we raise our FY18 DPU forecast by 1.9%.
- We find current valuations attractive, as its blended forward FY17/18F distribution yield of 6.8% is approximately 0.7 standard deviations above its 5-year average of 6.5%.