CapitaLand Ascendas Reit to acquire Seagate facility; proposes S$450 million private placement

CAPITALAND Ascendas Real Estate Investment Trust (Clar) is planning to acquire a high-specification research and development (R&D) facility and business park property in the one-north district for S$218.2 million.

The acquisition of The Shugart from Seagate Singapore is expected to be distribution per unit (DPU) accretive to unitholders, said its manager on Tuesday (May 16).

Assuming the acquisition was completed on Jan 1, 2022, DPU would increase by 0.7 per cent or 0.11 Singapore cent.

With the acquisition, Clar’s footprint in the one-north district will go up by 13 per cent to S$1.9 billion for assets under management, and by 21 per cent to 2.5 million square feet (sq ft) by net lettable area.

Including fees and expenses, the total acquisition cost is about S$232.4 million.

The property has a total land area of 125,722 sq ft, net lettable area of 440,028 sq ft and a weighted average lease expiry of 10 years. Its remaining land lease tenure spans approximately 20 years.

The Shugart will be acquired at a first-year net property income yield of about 8.3 per cent of pre-transaction costs and 7.8 per cent of post-transaction costs.

William Tay, chief executive officer and executive director of the Reit’s manager, said: “The proposed acquisition is a continuation of our value creation efforts to grow Clar’s portfolio with good-quality assets that have long-term growth potential and income stability.

“This acquisition involves the leaseback of the property to Seagate for 10 years, with an option for an additional 10 years, which will generate an attractive long-term stable return.”

Tay said that despite the property’s remaining land lease tenure of approximately 20 years, the building is “very useable beyond 30 years”.

The Shugart comprises a six-storey podium and a nine-storey tower, with specifications, including R&D, clean-room and data-centre space for Seagate Singapore’s operations.

The property, which serves as Seagate’s primary R&D location outside the US, was built about eight years ago.

Tay added that Clar can approach JTC “at the right time” to extend the land tenure, but much depends on “the quality of tenants”.

In a separate note, Clar has proposed a private placement agreement that will raise gross proceeds of at least S$450 million.

Approximately S$139.5 million or 31 per cent of the gross proceeds will be used to partially fund the acquisition of Seagate’s R&D facility and its associated costs, said the manager.

Another S$129.9 million or 28.9 per cent of the gross proceeds will partially fund the potential acquisition of an asset in Europe, subject to completion of final negotiations.

Combining the acquisition of The Shugart and the potential Europe acquisition, the manager expects DPU to be accretive on a pro forma basis.

Assuming that both acquisitions were completed in Jan 1, 2022, the estimated pro forma DPU accretion would be between 1.2 per cent and 1.3 per cent.

Another S$108.5 million or 24.1 per cent of the gross proceeds will go towards debt repayment; approximately S$64.4 million will go into partially financing the proposed redevelopment of a logistics property in Singapore.

The redevelopment plan is estimated to cost about S$107 million and is expected to be completed by Q4 2025. The stabilised yield on cost is about 7.5 per cent to 8.5 per cent, said the manager.

Clar’s resultant aggregate leverage is expected to decrease to about 37.6 per cent from the current 38.2 per cent, it added.

The Reit’s all-in debt cost stood at 3.3 per cent in its first fiscal quarter.

“We will look at where the interest rate will be in the next six to nine months; I suppose we will see some higher numbers towards the end of the year, but it won’t be far from 3.3 per cent,” he said.

The private placement is expected to increase the number of units in issue by at least 162.5 million, which represents an increase of at least 3.87 per cent of the total number of units currently in issue.

The new units are expected to be priced between S$2.713 and S$2.769 apiece – at a discount of between 3.6 per cent and 5.6 per cent to the volume weighted average price (VWAP) of S$2.8727 per unit for trades done on Monday.

For illustrative purposes, the issue price range represents a 1.5 per cent to 3.5 per cent discount to the adjusted VWAP of S$2.8113 per unit after subtracting an advanced distribution of S$0.06141 per unit.

Analysts had mixed reactions to the announcement.

Citi analyst Brandon Lee believes that immediate DPU accretion for Clar’s overall transaction could be muted.

This is because the 24 per cent of its proposed S$450 million private placement to be used to reduce debt and redevelopment is a process that is estimated to be completed only in Q4 2025.

“While we continue to like the Reit longer term for its well-diversified industrial portfolio, we expect the proposed equity fundraising exercise and mild DPU accretion to result in a short-term negative knee-jerk share price reaction,” Lee said.

Analysts from Lim & Tan Securities think Clar’s acquisition makes “strategic sense and is accretive to shareholders”, though they cautioned that gearing levels may rise in a high interest rate environment.

At S$2.88, the Reit is trading at a 5.3 per cent dividend yield of 1.2 times book value and 19 times price-to-earnings ratio, said the analysts.

Lim & Tan Securities maintained its “hold” call on Clar, as they expect a small 8 per cent upside to the consensus target price of S$3.11, amid a persistently higher interest rate environment.

Units of Clar closed Monday up 0.7 per cent or S$0.02 at S$2.88, before a trading halt was called, pending the announcement on Tuesday morning.