Jefferies keeps Ascendas REIT at 'buy' on expansion of UK presence

Jefferies keeps Ascendas REIT at 'buy' on expansion of UK presence

By: 
PC Lee
02/10/18, 04:58 pm

SINGAPORE (Oct 2): Ascendas REIT is buying another portfolio of 26 logistics properties in the United Kingdom for $461 million despite Brexit-linked uncertainty.

See: Ascendas REIT enlarges UK portfolio with $459 mil acquisition of logistics properties

The portfolio consists of 26 properties with gross internal area of 2.8 million sf located in key distribution centres in UK. Properties are located on freehold and 965-year leasehold land.

Initial operating yield is 5.54%. The transaction will be funded by 52% equity and 48% debt and is DPU-accretive.

In a Tuesday report, Jefferies analyst Krishna Guha says the newly acquired portfolio along with previous acquisitions will boost A-REIT's UK investment from 4% to 8% of total asset.

Following this transaction, A-REIT will have 30% exposure to logistics and increased presence in key logistics micro-market of West Midlands in UK.

Proportion of freehold properties will grow from 19% of asset base to 23%. In addition, the portfolio is relatively new with average of 16 years.

According to the REIT manager, the first year pre- and post-cost NPI yield is 5.54% and 5.39% respectively. Given the acquisition will be funded by mix of equity and GBP-denominated debt, it will be 0.022 cent accretive to pro-forma FY 17/18 DPU of 15.988 cents.

Debt funding cost, including hedging, is similar to previous acquisition or about 2.6%-2.8%, according to management. Income will be hedged on a rolling one-year forward basis. Earlier, management had highlighted intention to increase AUM to $2 billion in UK and EU. Currently, it stands at $847 million.

“While we are mindful of Brexit-related risks, sector such warehousing which is linked to domestic consumption and is experiencing strong demand and constrained supply, is likely to be bit more sheltered than office/retail sub-sectors,” says Krishna.

Further, structural shift towards online retail sales, which accounted for an average logistics take-up of 20% between 2015 and 2017 compared to an average take-up of approximately 7% between 2009 and 2013, is expected to continue to benefit the logistics sector.

“We also note that GBP has depreciated against the SGD (-33% over the last 10 years and -9% over the last two years), which perhaps suggest better entry opportunity and pricing in of some of the Brexit-related risks,” adds Krishna.

These transactions are likely to help the REIT build network which can help in deal sourcing and capital recycling in future.

According to Cushman and Wakefied, prime yields for logistics assets in UK were stable at 5.2% as of 2Q while annual rental growth of 4.4% as of June, for large distribution units, have reverted to 5-year averages.

According to 2Q JTC statistics, Singapore business park rents are up 0.5%, growing for five straight quarters. A-REIT has the largest exposure to business parks. Back filling of vacant space and positive rental reversion should provide DPU upside.

Year to date, units in A-REIT are down 5.5% to $2.60 and trades at 1.3x P/B with 5.9% yield.

CapitaLand Mall Trust upgraded to 'buy' by UOB on Jurong Lake District plans, Funan launch

SINGAPORE (May 27): CapitaLand Mall Trust will benefit from the development of Jurong Lake District (JLD) as it has three retail malls located within Jurong Gateway, says UOB KayHian. See: CapitaLand Mall Trust declares 3.6% higher DPU of 2.88 cents on higher income IMM Building, JCube and Westgate, which in total accounts for 20% of CMT’s portfolio valuation, are located within Jurong Gateway and adjacent to Jurong East MRT station. Meanwhile, Funan, which is about 90% pre-committed for retail space and 98% pre-committed for office space, is scheduled to open next month. See als....
Read More >>

Time to 'buy' MindChamps as growth initiatives bear fruit: RHB

SINGAPORE (May 27): RHB Research continues to keep MindChamps Preschool at “buy” at a lower target price of 83 cents compared to 87 cents previously, indicating a 26% upside plus 2.2% yield. The reduced target price comes after cutting FY19-20F earnings by 7% and 11%, respectively, upon management indications that adopting SFRS 16 has negatively impacted the group’s 1Q19 pre-tax profit by about $90 million or -15%. In a May 17 report, analyst Juliana Cai says she nonetheless remains positive on MindChamps as she expects the group to start reaping returns from its investments as its....
Read More >>

Ascendas-Singbridge establishes co-innovation lab with IMDA & Enterprise Singapore

SINGAPORE (May 27): Singapore’s smart nation ambitions have been further bolstered by a new partnership between Ascendas-Singbridge, Infocomm Development Authority of Singapore (IMDA) and Enterprise Singapore (ESG) to form the Smart Urban Co-Innovation Lab. All three parties are looking to have a total of 30 co-innovation projects come out from the lab, which is expected to be launched at the end of the year as the first developer-led lab in Southeast Asia. This announcement follows last year’s call for innovation led by IMDA, Ascendas and JTC. Ascendas has published 12 probl....
Read More >>