Ascendas REIT - Small but accretive (DBSV)

HOLD S$1.92 STI : 2,728.31

Price Target : 12-Month S$ 2.14

Reason for Report : Acquisition

Potential Catalyst: Acquisitions/ strong operational earnings

DBSV vs Consensus: In line, we have not factored in acqusitions in our numbers

• Acquires 2 industrial properties for S$179m

• Deepens presence within Jurong Lake District and Changi Business Park

• Maintain HOLD and S$2.14 TP

Acquires 2 industrial properties for S$179m. A-REIT announced the acquisition of 2 buildings in Singapore - 2 Corporation Place (S$99m,S$189psf GFA) and 3 Changi Business Park Vista (S$80m, S$482 psf GFA) - for a total consideration of S$179m. Located within Jurong Lake District and Changi Business Park respectively, the acquisitions will further deepen their already established presence within the 2 industrial hubs. The properties are multi-tenanted buildings housing quality tenants i.e MNCs involved in a variety of valued added sectors like IT, Electronics and engineering.

Initial yields estimated at 7.0%; accretive to earnings with potential upside. Initial yields for the properties are estimated to be in the range of c7.0%, higher when compared to its implied trading yield of close to c6.25%.The properties will be funded by debt - gearing as of Sept’11 is 31.5% and is expected to head to c37.5% after accounting for all its capex requirements by end 2013. We have revised our estimates slightly up by 0.7% in FY13 as we incorporate the acquisition in our numbers. In addition, we see potential upside at 2 Corporation Place, which is only 80% occupied currently; the manager remains confident of improving that given the property’s good accessibility.

Positive long-term prospects in Jurong/Changi Business Park regions; maintain HOLD and S$2.14 TP. While we remain cautious on the outlook of Business Parks/Hi-tech space performance in the immediate term (refer to Industrial REIT sector report dated 8th Dec’11), we acknowledge the longer term benefits of having an increasing exposure in these 2 established hubs. This allows A-REIT to offer new/existing tenants a variety of space choices in these locations. Maintain HOLD. S-REIT offers a FY12-13F yield of 6.7-7.0%.