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SINGAPORE (Dec 4): Maybank Kim Eng Research is keeping Ascendas Real Estate Investment Trust (Ascendas REIT) as its top pick among Singapore REITs, after unitholders supported its proposed acquisition of a portfolio of 30 business park properties.

The manager of Ascendas REIT had on Nov 1 announced the proposed acquisition, which would see the REIT buy the 28 properties located in the US and two properties in Singapore from CapitaLand for a whopping $1.66 billion.

To help fund the proposed acquisition, the manager also proposed to undertake an underwritten and renounceable rights issue of some 498 million new units in Ascendas REIT at an issue price of $2.63 per unit to raise gross proceeds of around $1.31 billion.

See: Ascendas REIT to acquire 30 business park properties from CapitaLand for $1.66 bil; launches rights issue at $2.63 per unit to raise $1.31 bil

Since the announcements, units in Ascendas REIT have retreated 5.4% from $3.17 on Nov 1 to close at $3.00 on Dec 3.

However, at an extraordinary general meeting on Nov 27, unitholders voted overwhelmingly in support of the proposed acquisition, with some 93.2% voting for the resolution.

In a report on Dec 2, analyst Chua Su Tye notes that while Ascendas REIT’s share price has fallen, its growth fundamentals are looking up. He estimates that the REIT will see its revenue, net property income (NPI) and assets under management (AUM) increase by 14%, 15% and 15% respectively.

Maybank is keeping its “buy” call on Ascendas REIT with an unchanged target price of $3.35.

“We see near-term catalysts from its Singapore recovery, rising overseas contributions, and further acquisition opportunities,” Chua says. “Valuations at 5.5% DPU yield and 4.0% CAGR are compelling for this largest most liquid industrial S-REIT name.”

The proposed acquisition of two Singapore properties – Nucleos at Biopolis and FM Global Centre at Singapore Science Park 2 – come as Singapore’s industrial sector recovery looks to gain traction in 2020 on easing supply-side pressures.

Meanwhile, the 28 US properties should lift Ascendas REIT’s overseas NPI contribution, Chua adds.

Chua notes that Ascendas REIT’s gearing has improved to 34.6%, from 36.3% as of end-September 2019.

“We estimate debt headroom of $0.8-1.8 billion to support further accretive deals, with AREIT likely to explore further bolt-on opportunities in key overseas markets, near term,” Chua says.

Units in Ascendas REIT closed 1 cent lower at $2.99 on Wednesday, implying an estimated price-to-net tangible asset (P/NTA) of 1.2 times and a DPU yield of 5.5% for FY2020E.