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Hot stock: Ascendas Reit sheds 6.3% after unveiling acquisitions, S$1.2b fundraising

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The proposed US acquisition involves two freehold office properties in San Francisco, one (above) of which is fully leased to payments giant Stripe.

UNITS of Ascendas Real Estate Investment Trust (Ascendas Reit) lost ground on Wednesday after its manager announced it was readying a war chest to acquire data centres and office buildings overseas.

The counter fell 6.3 per cent or S$0.20 to S$2.99 as at 1.11pm, after some 27 million units changed hands. It regained slight momentum to trade at S$3.00, down S$0.19 or 6 per cent, as at 1.53pm. Ascendas Reit was the third most actively traded by value on the Singapore bourse by then.

The Reit manager had requested a trading halt on Tuesday morning, before the announcements, and lifted it on Wednesday morning.

On Tuesday, the manager launched a S$1.2 billion equity fundraising to finance potential and proposed acquisitions in the US, Europe and Australia.

It fixed the issue price for the preferential offering to unitholders at S$2.96 per new unit, the bottom end of the indicative range.

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That is at a 7.8 per cent discount to the volume-weighted average price (VWAP) of S$3.2096 for all trades done in the units on Nov 9, up to the time the underwriting agreement was signed on Nov 10.

The preferential offering will be done on the basis of 37 new units for every 1,000 existing units held, the manager said on Wednesday morning.

Meanwhile, the private placement was priced at S$3.026, also at the low end of the indicative price range, representing a 5.7 per cent discount to the VWAP.

Gross proceeds will amount to some S$800 million from the private placement and about S$396.5 million from the preferential offering.

The total purchase price for the Europe, Australia and US acquisitions is estimated at S$2 billion, the manager told analysts and media during a webcast on Tuesday.

The proposed US acquisition involves two freehold office properties in San Francisco with a combined price tag of US$560.2 million, to be partially funded with about a third of the fundraising's proceeds.

That translates to a "decent" initial net property income (NPI) yield of 4.9 per cent, before transaction costs, said OCBC Investment Research.

The OCBC analysts noted that the properties are located in the South of Market (SoMa) submarket - the epicentre of San Francisco's technology industry - which is expected to benefit from the likely increase in tech employment and has seen tight vacancy rates.

SoMa boasts an 85.6 per cent concentration of tech-sector tenancies, said Maybank Kim Eng (MKE). "Strong demand growth and capped new supply till 2030 should underpin growth in occupancies and rents," the brokerage added.

The two properties are under-rented by 5-25 per cent, according to management, which suggests higher NPI yields of 6 per cent, up from 4.9 per cent, are achievable, said MKE analyst Chua Su Tye.

One of the buildings is fully leased to payments giant Stripe with a weighted average lease expiry (WALE) of seven years, while the other is fully leased to image-sharing platform Pinterest with a WALE of 12.4 years. The triple-net leases are embedded with rental escalations of 2-3 per cent per annum.

"Given the long WALEs of the two properties with no termination clauses, we believe this would mitigate any concerns of the impact and trend of employees working from home," wrote OCBC.

CGS-CIMB said that after the US acquisition, Ascendas Reit's assets under management (AUM) will likely expand to S$13.75 billion, of which about two-thirds are in Singapore while the rest are located abroad.

In Europe, Ascendas Reit is eyeing a portfolio of large-scale data centres in Tier 1 hubs. These properties will have a mix of triple-net powered shells and operational turnkey data centres. The manager said it expects to acquire this portfolio at "attractive property yields".

If successful, the Europe deal will raise the trust's data-centre exposure, by AUM, to 10 per cent from 4 per cent.

About half of the proceeds from the fundraising exercise will partially finance the potential Europe purchase, while another S$180 million will be used for the potential acquisition of a suburban office property in a Tier 1 city in Australia.

These two deals are subject to the completion of negotiations with the sellers and satisfactory due diligence.

MKE on Tuesday said the Reit's fundamentals remain strong, backed by its scale, distribution per unit (DPU) visibility and further overseas diversification. The brokerage maintained its "buy" recommendation and S$4.00 price target.

The Reit manager on Tuesday said that if the US, Europe and Australia purchases are all completed, the DPU accretion will be around 2-2.5 per cent, assuming they were completed on April 1, 2019.

CGS-CIMB retained its earnings estimates, "add" rating and target price of S$3.20, pending details on the Europe and Australia deals.

"We continue to like Ascendas Reit for its resilient and diversified portfolio and strong inorganic growth visibility," wrote CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei.

OCBC likewise sees benefits from the trust's wide geographical footprint. The acquisitions will further diversify its income streams and build resilience in the portfolio, the research team added, retaining its fair-value estimate of S$3.92 and "buy" call on the stock.

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