Ascendas REIT - Acquires Business Park property in Beijing for RMB 300m (DBSVickers)

HOLD S$2.02 STI : 2,621.40

Price Target : 12-Month S$ 2.14

Tapping sponsor links in China. Ascendas REIT announced the acquisition of Ascendas Z-Link, a Business Park property located in Zhongguancun Software Park ("Z-Park"), within the Haidian district in Beijing. The property was acquired from a related party of its sponsor, the Ascendas China Industrial and Business Park Fund, for RMB 300m.

Z-Park is a state-level park sponsored by the National Ministry of Information Industry catering to information technology and research & development (R&D) companies and is understood to be dubbed as China’s “Silicon Valley” due to its pioneering efforts in the innovation and creativity industry. It is also located in close proximity to China’s top universities such as Peking University and Tsinghua University. This acquisition, in our view, is in line with AREIT management’s China strategy of selectively acquiring Business & Science Park assets in major tier one cities.

100% leased building with quality names. The 27,430sqm business park asset is understood to be fully leased. Major tenants include quality household names like Baidu,Inc.com and Raisecom Technology Co, Ltd. Hence, earnings quality is likely to be relatively solid. The presence of these technology giants further affirms Z-Link’s good location within the technology hub in Haidian District.

Upon completion of this acquisition, A-REIT's China exposure will still be relatively small at c1.1% of asset value and is expected to continue growing as management looks for higher yielding acquisitions. We will like to highlight that management has previously indicated that China’s presence in its portfolio will grow to be capped at 15% of total assets/earnings exposure in the longer term.

Earnings impact minimal, maintain HOLD with S$2.14 TP. The acquisition is likely to be fully funded by debt and we estimate earnings accretion to be minimal at c0.02 Scts based on an initial yield of 8.2%. Gearing is estimated to remain at c35%, which is conservative even after accounting for funds to be utilized for the development of its projects in Singapore.

We continue to like A-REIT for its diversified portfolio and management’s track record of delivering earnings growth for unitholders, but current upside to our TP is limited. As such, we maintain HOLD rating and DCF-derived TP of S$2.14. A-REIT currently offers a FY12-13 yield of about 7.0%.