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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

Stanislaus Jude Chan

SINGAPORE (Nov 1): The manager of Ascendas Real Estate Investment Trust has announced the proposed acquisition of a portfolio of 30 business park properties from CapitaLand for $1.66 billion.

Post-transaction costs, the proposed acquisitions are expected to generate a first year net property income yield of 6.3% for Ascendas REIT.

The transaction is also expected to be distribution per unit (DPU) and DPU yield accretive for the REIT. On a pro forma basis, the proposed acquisitions estimated to add 0.101 cents to Ascendas REIT’s FY18/19 DPU, translating to a DPU yield accretion of approximately 3.0%.

The portfolio comprises 28 properties located in the US and two properties in Singapore, with a combined net lettable area (NLA) of 359,864 sqm.

The average occupancy rate of the properties stands at 93.8%, with a weighted average to expiry by gross rental income of 4.9 years.

The 28 properties in the US – located in the cities of Raleigh, Portland and San Diego – are sited on freehold land, and will constitute about 10% of Ascendas REIT’s total asset value.

The enlarged portfolio will also boost Ascendas REIT’s proportion of freehold properties by asset value to 29.0%, from 21.9% currently.

Meanwhile, the two properties in Singapore – Nucleos at Biopolis and FM Global Centre at Singapore Science Park 2 – have a weighted average land lease to expiry (WALE) of 56.7 years.

The manager of Ascendas REIT says the proposed acquisitions will complement and strengthen the quality of the REIT’s existing business and science park portfolio.

With the acquisitions, Ascendas REIT’s investment in the business and science park segment will be up 46% to $5.41 billion – constituting 42% of its total asset value of $12.8 billion.

“We are really excited to acquire these properties in the US and Singapore. Their strategic locations and strong tenant base will allow us to tap into the growing information technology, financial, and medical and healthcare sectors,” says William Tay, executive director and CEO of the manager.

“They are already DPU and DPU yield accretive, and we know that they will contribute positively and augment the sustainability of Ascendas REIT’s earnings,” he adds.

The REIT manager intends to fund the total acquisition cost of $1.71 billion from the net proceeds of a proposed rights issue, as well as a drawdown of loan facilities, and the issuance of the acquisition fee units.

The manager has 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.

The issue price represents a discount of around 17.0% to Ascendas REIT’s closing price of $3.17 per unit on Oct 31, the last trading day prior to the announcement. It is also a discount of 15.0% to the theoretical ex-rights price (TERP) of $3.0955 per unit.

Approximately $1.29 billion, or 98.9% of the gross proceeds from the rights issue, will be used to partially fund the proposed acquisitions, while the remainder will be used to pay the estimated fees and expenses incurred in relation to the rights issue.

The manager says the right issue could “potentially increase the market capitalisation of Ascendas REIT, which may help to improve the trading liquidity”.

It adds that it believes these would “provide Ascendas REIT with increased visibility within the investment community”.

DBS Bank and JP Morgan (SEA) have been appointed as the joint lead managers and underwriters for the rights issue.

Meanwhile, in a separate announcement on Friday, CapitaLand says the proposed divestments of the 30 business park properties will allow the group to unlock capital value for reinvestment and redeployment. 

Upon completion, CapitaLand is expected to realise an estimated gain of about $95.4 million.

The manager of Ascendas REIT, Ascendas Funds Management (S), is wholly-owned subsidiary of CapitaLand. CapitaLand is also a controlling unitholder of Ascendas REIT.

“The enlarged CapitaLand portfolio following our combination with Ascendas-Singbridge has provided us with a robust pipeline of quality assets and additional REIT vehicles for recycling assets.  This will stand us in good stead to achieve sustainable double-digit return on equity for the group,” says Lee Chee Koon, Group CEO, CapitaLand Group.

“Moving forward, we will continue to take part in the growth of these quality assets through CapitaLand’s stake in Ascendas REIT.  CapitaLand will also continue to manage the properties and receive a recurring fee income,” he adds.

As at 2.59pm, shares in CapitaLand are trading 5 cents higher, or up 1.4%, at $3.65.

The manager of Ascendas REIT had called for a trading halt before market open on Friday, pending the acquisition announcement. Units in the counter closed at $3.17 on Thursday.

Year-to-date, units in Ascendas REIT are trading 24.2% higher.

Ascendas REIT on Friday announced a 2.3% increase in distribution per unit (DPU) to 3.978 cents for the 2Q19 ended September, from DPU of 3.887 cents a year ago.

Total income available for distribution grew 7.6% y-o-y to $123.8 million in 2Q19, from $115.0 million a year ago.

2Q19 gross revenue grew 5.3% to $229.6 million, on the back of full quarter contribution from the 38 logistics properties in the UK that were acquired between August and October 2018. Consequently, net property income rose 12.0% to $177.9 million in 2Q19, from $158.9 million a year ago.

“This quarter, our overseas acquisitions helped boost DPU by 2.3%. We will continue to diversify our portfolio geographically to ensure resilience and future growth,” says Tay.

See: Ascendas REIT posts 2.3% rise in 2Q DPU to 3.978 cents; proposes acquisition of 30 properties in US and Singapore for US$1.66 bil