Ascendas Real Estate Investment Trust | Buy Target price: S$2.65 Dec 6 close: S$2.37 DBS Group Research, Dec 6

Ascendas Real Estate Investment Trust (A-Reit) continues to deepen its exposure to the business parks/science parks space with an acquisition of three properties at a price of S$420 million. The acquisition ticks most of the boxes - long lease tenure (16.5 years with annual escalations of 2.0 per cent to 2.5 per cent), long unexpired land lease tenure (65.7 years) and offers investors a deeper exposure to a sector (research and development) that continues to grow. The yield of 6.0 per cent (all-in cost) appears low at first glance but we believe it reflects the properties' relatively young age (2.0 years) and long land lease tenure. Accretion is projected to be marginal at 0.5 per cent. We have yet to factor in the acquisition, pending an extraordinary general meeting.

A-Reit stands tall in the face of rising interest rates going into 2017 with a spread-out debt expiry profile of 3.8 years, implying that the Reit does not face any major refinancing in any one year. The manager adopts a prudent interest rate risk management strategy with a weighted average cost of debt of 3.0 per cent with 78.0 per cent hedged into fixed rates.