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Ascendas Reit seeks to raise S$1.2b, plans US$560.2m purchase of office buildings

505 Brannan Street in San Francisco is a six-storey building fully leased to Pinterest - Ascendas Reit.jpg
505 Brannan Street in San Francisco is fully leased to Pinterest. Ascendas Reit is looking to acquire the office building together with 510 Townsend Street.

510 Townsend Street in San Francisco is a seven-storey office building fully leased to Stripe - Ascendas Reit.jpg
510 Townsend Street in San Francisco is fully leased to Stripe. Ascendas Reit is looking to acquire the office building together with 505 Brannan Street.

ASCENDAS Real Estate Investment Trust (Ascendas Reit) has launched a private placement and preferential offering to raise gross proceeds of about S$1.2 billion.

This will go into financing its potential and proposed overseas acquisitions, including the US$560.2 million purchase of two office properties in San Francisco that was also announced on Tuesday morning.

Under the equity fundraising exercise, the placement's issue price will be between S$3.026 and S$3.121 for each new unit.

That represents a discount of about 2.8-5.7 per cent to the volume-weighted average price (VWAP) of S$3.2096 per unit of all trades in Ascendas Reit's stock on Nov 9, up to the time the underwriting agreement was signed on Nov 10.

The private placement of between 256.3 million and 264.4 million units to institutional and other investors aims to raise gross proceeds of some S$800 million.

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Meanwhile, the preferential offering to unitholders will carry an issue price of between S$2.96 and S$3.05 per new unit, which is at a 5-7.8 per cent discount to the VWAP.

The pro rata and non-renounceable preferential offering of up to 133.9 million new units will raise gross proceeds of about S$400 million, said the manager.

Of the gross proceeds, about half or S$614 million will partially fund the potential purchase of a portfolio of data centres in Europe, while another S$180 million will be used for the potential acquisition of a suburban office property in Australia.

These two deals are subject to the completion of negotiations with the vendor and satisfactory due diligence; Ascendas Reit's manager is evaluating both potential acquisitions and may or may not proceed with them.

About S$380 million of the gross proceeds will partially fund the proposed acquisition of the two San Francisco properties.

The trust's manager on Tuesday said that both office buildings were completed in 2017 and are fully leased to technology tenants - payments giant Stripe as well as image-sharing and social media platform Pinterest - for a weight average lease expiry (WALE) of 9.1 years.

This will lengthen the total portfolio WALE to 4.1 years from 3.9 years by rental income as at end-September.

The purchase price of US$560.2 million is below the independent market valuations of the properties of US$573 million as at Oct 15.

The manager added that it will be able to "plant a foothold" in San Francisco, the epicentre of the US technology ecosystem and a life sciences cluster, with the proposed deal.

The two office properties - a seven-storey building at 510 Townsend Street and a six-storey building at 505 Brannan Street - are located within the South of Market submarket, which has one of the highest concentrations of tech tenants in the city. Other key tenants in the vicinity include Adobe, PayPal, Airbnb and Cruise Automation.

Stripe and Pinterest will increase Ascendas Reit's exposure to the tech, biomedical and digital media industry in the US to 75 per cent, from 65 per cent as at end-September, said the manager.

As the properties are sited on freehold land, the proposed acquisition will also increase the proportion of freehold properties in the trust's portfolio to 34.2 per cent by asset value, from 30.2 per cent.

Net property income yield for the first year is about 4.9 per cent before transaction costs and 4.8 per cent after transaction costs. The annualised pro forma impact on FY2019 distribution per unit (DPU) is expected to be an improvement of 0.129 Singapore cent, assuming the proposed acquisition was completed on April 1, 2019.

The proposed acquisition is expected to take place within the current financial year.

Ascendas Reit's manager requested a trading halt on Tuesday before market open. Its units rose S$0.02 or 0.6 per cent to finish at S$3.19 on Monday.

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