SGstocksandshares (SGSAS): AREIT SP: Proposed Acquisition of S$1b Australian Portfolio

18 September 2015

AREIT SP: Proposed Acquisition of S$1b Australian Portfolio

Ascendas REIT (AREIT SP) BUY

Proposed Acquisition of S$1b Australian Portfolio
Analyst(s): Vikrant Pandey/ Derek Chang : (65) 6590 6623 / 6590 6614

Ascendas REIT (A-REIT) proposed the maiden acquisition of a portfolio of 26 Australian freehold industrial assets for A$1.01b (~S$1.01b). This marks AREIT's maiden entry into Australia, extending its reach into cities like Sydney (9 properties), Melbourne (9 properties), Brisbane (7 properties) and Perth (1 property). Aggregate leverage is expected to increase from 34.7% to 37.3% once the acquisition is completed.
Management expects DPU accretion of about 3-3.5%, using a combination of debt and perpetual securities, (Australian onshore loans of A$600m with the remaining financed by perps). However, we understand that the NPI yield will likely be around 6-6.4%, which is comparable to leasehold properties in Singapore.
The transacted price comes at a 6.6% premium to the independent valuation of A$950.64m (S$950.64m) by Jones Lang Lasalle (JLL). However, JLL has also opined that taking into consideration past Australian portfolio transactions, a portfolio premium of 7.5-10% above market valuation is line with industry standards.
Acquisition is in line with management's strategy for overseas markets to account for 20-30% of the portfolio. The transactions extends AREIT's footprint in Australia to about 11% by asset value. The portfolio asset value would increase by about 14% to about S$8.96b.
The announcement has been attached for reference. We will update further after the management briefing.

Valuation. We have a BUY recommendation on AREIT with a target price S$2.62. Our valuation is based on a two-stage DDM model (required rate of return: 6.9%; terminal growth rate: 1.5%). The stock is offering a yield of 6.6%. We will incorporate the accretion from the Australian acquisition after the management briefing.

Proposed Portfolio Details

This transmission has been issued by a member of the UOB Kay Hian Group for the information of the addressee only and should not be reproduced and/or distributed to any other person. Each page attached hereto must be read in conjunction with any disclaimer which forms part of it. Unless otherwise stated, this transmission is neither an offer nor the solicitation of an offer to sell or purchase any investment. Its comments are based on information obtained from sources believed to be reliable but UOB Kay Hian Group makes no representations and accepts no responsibility or liability as to its completeness or accuracy.