Monday 25 August 2014

Ascendas REIT

OCBC on 22 Aug 2014

(A-REIT) recently announced the completion of acquisition of Aperia, a newly completed integrated mixed-use development in Kallang iPark, for a total transaction value of S$458m. Recall that A-REIT first proposed to acquire the property during the launch of private placement on 8 Mar 2013. As previously guided, ~S$270m out of the S$406.4m gross proceeds raised from the placement will be used to fund the acquisition, while the rest of the amount by debt financing. A-REIT disclosed that Aperia has secured pre-commitment for 46% of the space with another 15% in advanced negotiations. This is a tad lower than our initial assumption of 70% occupancy rate upon completion. Nonetheless, we understand that Aperia will be home to renowned companies such as Intel and popular retailers including Cold Storage, which should translate to sustainable income stream for A-REIT. We retain our BUY rating and S$2.45 fair value on A-REIT.

Completion of Aperia acquisition
Ascendas REIT (A-REIT) recently announced the completion of acquisition of Aperia, a newly completed integrated mixed-use development in Kallang iPark which obtained its temporary occupation permit on 16 Jun. The total transaction value was at S$458m (or S$612 psf NLA), representing a 6.1% discount from the independent valuation of S$488m by DTZ. We note that the land premium of S$218.3m for the 60-year leasehold (commencing from 22 Feb 2012), payable under the terms of the Building Agreement, has been fully paid.

Details on the property
Aperia is centrally located at the fringe of the Central Business District and is within five minutes’ walk to Lavender MRT station. The property is zoned “Business 1 –White” with a maximum permissible plot ratio of 3.0 and consists of two Business-1 towers and three levels of retail and amenity space. According to management, Aperia offers high-specification business space designed for industrial and supporting business, and features a suite of facilities such as a recreational pool, childcare, supermarket and F&B outlets. Recall that A-REIT first proposed to acquire the property during the launch of private placement on 8 Mar 2013. As previously guided, ~S$270m out of the S$406.4m gross proceeds raised from the placement will be used to fund the acquisition, while the rest of the amount by debt financing. Accordingly, gearing is expected to increase from 31.6% as at Jun-end to 34.0%.

Maintain BUY
A-REIT disclosed that Aperia has secured pre-commitment for 46% of the space with another 15% in advanced negotiations. This is a tad lower than our initial assumption of 70% occupancy rate upon completion. Nonetheless, we understand that Aperia will be home to renowned companies such as Intel, Audi, McDonald’s and popular retailers including Cold Storage, which should translate to sustainable income stream for A-REIT. We now tweak our forecasts to accommodate the latest reported figures. Our fair value remains unchanged at S$2.45. Retain BUY.

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