Tuesday, 12 August 2014

Ascendas Reit

Kim Eng on 11 Aug 2014

  • Buying Aperia for SGD458m (SGD613 psf), including land premium of SGD218.3m.
  • Aperia will house tenants such as Intel, Audi & McDonald’s.
  • Marginally accretive. Reiterate BUY with slight bump in our DDM TP to SGD2.66 from SGD2.65. Catalysts from further yield-enhancing acquisitions.
What’s New
AREIT just announced its acquisition of Aperia, a new industrial  mixed-use property on a 60-year leasehold land parcel with NLA of  747k sf for SGD458m (SGD613 psf). Located in Kallang iPark,  the  development consists of two business towers with a three-storey  retail and amenity space. It offers high-spec space for industrial  and supporting businesses and white space for retail facilities  and amenities. Precommitment for 46% of the space has been secured with advanced negotiations for another 15%. Aperia will be home to companies such as Intel, Roche Diagnostics, Audi, Cardinal Health, McDonald’s, and popular retailers such as Cold Storage, Tim Ho Wan and Old Town CafĂ©. Aperia obtained its TOP on 16 Jun 2014. The acquisition will be partially funded (SGD274m) by gross proceeds of SGD406.4m from AREIT’s private placement of 160m new units in Mar 2013. The rest of the money will come from debt. Accordingly, AREIT’s gearing could climb from 31.6% as of 30 Jun to 34.0%.

What’s Our View
We expect modest yield accretion, with a stabilised NPI yield of 6.2%. We forecast an initial average passing rent of SGD4.80 psf/month and initial occupancy of 68% for FY3/15E, before  improvements to 95% on a stabilised basis in FY3/17E. Reiterate  BUY with a slight increase in our DDM TP to SGD2.66 from SGD2.65, factoring in this acquisition (cost of equity 7%, TG 1%).

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