Ascendas REIT just acquired two science park properties. What does it mean for unitholders?

SINGAPORE (Dec 6): Ascendas REIT is acquiring two properties located along Science Park Drive for S$437.5 million (RM1.37 billion) from its sponsor Ascendas Land.

The two buildings, DSO National Laboratories and DNV GL Technology Centre, are fully tenanted with a weighted average lease expiry of 16.5 years. They were completed recently and have remaining land tenure of 64.7 years.

The purchase price was a 2% discount to the average of two independent valuations. Subject to unitholders’ approval, the acquisition will be funded through the issue of S$100 million new units and bank borrowings.

RHB’s research analyst Vijay Natarajan points out that the two parties could opt for cash payment instead of unit issue, and that option would result in Ascendas REIT’s gearing increasing from 34.2% to 36%. Following which, the REIT would have a debt headroom of S$500 million to reach the maximum gearing level of 40%.

Aside from the increased gearing, Natarajan explains that the transaction is DPU (distribution per unit) accretive from the get go, as the properties have an underlying net property income yield of 6%. Both acquisitions also come with triple-net leases with a built in rental escalation of 2.2% to 2.5% per annum.

Upon the completion of the transaction, the REIT’s WALE could stand to increase from 3.7 years to 4.4 years, as exposure to the business and science park segment would increase from 33% to 36%. Multi tenanted buildings would also take up a bigger proportion of the REIT’s portfolio, increasing from 73.3% to 74.5%.

To that end, Natarajan maintains his “buy” rating and target price of S$2.63 for the stock.

Units in Ascendas REIT are trading unchanged at S$2.36 on Tuesday. — theedgemarkets.com.sg