Ascendas Reit

CIMB Research on 8 Mar 2013

ASCENDAS Reit (A-Reit) is placing out 140 million new units to raise gross proceeds of no less than $350 million. The issue price is $2.50-$2.55, implying FY2013 yields of 5.5-5.6 per cent and representing 2.1-4.1 per cent discounts to its adjusted volume-weighted average price.

Proceeds will be used to fund potential acquisitions. About $126 million will be for Singapore Science Park II and $210 million for the partial funding of business space and a white commercial property at Kallang Avenue from PLC 8 (a Soilbuild-related entity). The latter is a property under construction which should be completed around mid-2014 with a value of around $490 million.

Factoring in the acquisitions and placement, asset leverage should be about 34.6 per cent (39 per cent if the assets are fully debt-funded).

We like the acquisitions for their attractive pricing. The placement also appears necessary and A-Reit's good share price YTD has just offered it an opportunity.

Acquisition yields from Science Park II are attractive at high 6 per cent, while the Kallang Avenue property should have yields of 6 per cent or so upon completion, translating into blended yields of 6.3-6.4 per cent. With these, we project full-year stabilised accretion of 3 per cent, assuming its remaining commitments for Kallang Avenue are funded at 2.0 per cent costs.

There will, however, be near- term dilution of 3 per cent in FY2013 before the Kallang Avenue property is ready.

With this, our FY2014 distribution per unit (DPU) will be flat before growing by 9.5 per cent in FY2015. We lower our FY2014 DPU by 3 per cent for dilution and raise FY2015 DPU by 3 per cent for contributions from its acquisitions.

Rolling forward our forecasts and with the above accretion, we raise our dividend discount model- based target price to $2.79 (discount rate: 6.7 per cent).

We continue to like A-Reit for its disciplined approach to acquisitions. Any share price weakness on the placement should offer good entry points. Maintain "outperform" with catalysts expected from stronger-than-expected rental reversions.

OUTPERFORM