Ascendas REIT

Kim Eng on 8 June 2012

Goldin Logistics Hub sold for SGD32m. Ascendas REIT (A-REIT) recently entered into a put and call option agreement with Chasen Holdings for the sale of Goldin Logistics Hub for SGD32m. This marks its first divestment in 9.5 years since listing and represents a 42.2% premium over the original purchase price of SGD22.5m in 2007 and a 33.3% premium over the last valuation of SGD24m as at 31 Mar 2012.

Targeting end-June completion. The hub is located at 6 Pioneer Walk within the Jurong Industrial Estate and
has a remaining land tenure of about 24 years. It is a two-storey warehouse with a ramp-up driveway and a four-storey ancillary office, as well as a single-storey workshop and a container yard with a gross floor area of 216,300 sq ft. The transaction is subject to JTC’s approval and is expected to be completed by end-June 2012. The existing lease will expire in Dec 2017 and will be assigned to Chasen upon completion of the sale.

Adjustments to our estimates. We raise our FY3/13F DPU by 2.2% in view of the divestment gains (assumed paid out) but lower our FY3/14F-15F DPU by 0.6% pa. We expect FY3/14F-15F gross revenue to decline by 0.3% pa due to the loss of rental income. Following this sale, A-REIT will now own 100 properties in Singapore and one business park in China.

Conviction BUY among industrial REITs. We continue to like A-REIT for its stable DPU yield, healthy lease expiry and debt maturity profile, underpinned by a diverse portfolio (business/science parks, hi-tech industrials, flatted factories, light industrials, logistics and distribution centres and warehouse retail). Based on our forecasts, business/science parks currently constitute 40% of our FY12F GAV, followed by hi-tech (23%), logistics and distribution (19%), light industrial (15%) and warehouse retail facilities (3%). Potential acquisitions overseas could provide further upside for DPU growth. Importantly, A-REIT is also less vulnerable to asset erosion, with its defensive properties located primarily in Singapore. The stock currently trades at 6.8% FY3/13F yield and 1.1x P/BV. Reiterate BUY with a DDM-derived target price unchanged at SGD2.23.