HOLD; S$2.14, Price Target: S$2.14
Ascendas REIT acquires Nordic European Centre at International Business Park for S$121.5m
In the News
Ascendas REIT announced the acquisition of Nordic European Centre - a 7 Storey business park building located in International Business Park within the Jurong Lake District masterplan. The property has a total GFA of 28,378 sqm (NLA of 22,066 sqm) and located in close proximity to Ayer Rajah Expressway. This is the 6th property within the International Business Park that AREIT owns, which empowers the landlord with significant presence to extract possible operational efficiencies. In addition, the acquisition will bring in quality MNCs tenants like Merck Pte Ltd, Evonik Degussa (SEA) Pte Ltd and Thyseenkrupp Mannex Asia Pte Ltd. The building was previously owned by a fund managed by Alpha Investment Partners Limited since July 2006.
The purchase consideration is S$121.5m representing a price/GFA of S$398 psf.
Our thoughts:
(1) Initial yield is estimated to be c6.0%; accretive to earnings. This compares favorably against the current NPI yield of c.5.9% on its portfolio of Business Parks assets, based on latest valuation and reported numbers by the REIT. Current occupancy level of 83% also offers opportunity for further earnings upside going forward. We note that this acquisition will be funded through proceeds of recent placement/debt and will be accretive to DPU. However, the acquisition is relatively small in comparison to its portfolio, and DPU is estimated to increase by only c 0.02 Scts or <1%.
(2) debunks "excess capital theory" in the street; acquisition within our estimates. With this acquisition, Ascendas REIT deploys a major part of its "excess capital" that was raised in previous placement exercise. We understand that the manager will continue to hunt for assets in Singapore and could possibly tie up a couple of other opportunities over the coming quarters. We have assumed S$200m worth of acquisitions in our numbers for FY12.
We maintain our TP and Call.
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