Those who are learning how and where to invest their money as beginners, will often want to keep abreast of all the major acquisitions and divestments, especially when it comes to their REIT holdings. One such acquisition is Ascendas Reit’s Proposed SGD 1.66 Billion acquisition of business parks in Singapore and the United States.
Of the SGD 1.66 Billion, 380 million will be spent on 2 properties, namely the Nucleos in one north and Singapore Science Park 2. The remaining 1.2 billion will be spent acquiring 28 business properties in the United States.
All 30 Properties used to be part of Capitaland’s Investment Property Portfolio and is being recycled into Ascendas Reit.
Quality of Property
The Properties in this deal will contribute about 107.6 million of Net Property Income to A-Reit. Given the price tag of about 1.66 B, the Net Property Income Yield is about 6.4% – 6.5%. All the properties have a strong occupancy rate of over 90%. There are some interesting points that an investor can note.
Firstly, the WALE for the US properties is at 4.2 Years, which is lower than that of the Singapore properties which has a WALE of 6.9%. Also, the US properties are freehold properties whereas the Singapore property has a remaining lease of 56.7. Do note that even though the remaining lease looks low, it is fairly new as industrial leases are capped at 60 years.
The investment in US Business Parks shows Ascendas Reit’s interest in being a part of the technology and healthcare sector as the properties are mainly in the cities of San Diego, Raleigh, Portland.
San Diego: Houses the largest US naval base, and is home to three major research universities
Raleigh: is part of the largest research park in the US and largest life science hub in the east coast.
Portland: Houses the global headquarters of leading sports apparel brands like Nike, Columbia, Adidas and Mizuno.
While it takes more time to do research on the various locations and verify the company’s claims, investors can have some comfort from the 6% CAGR in annual rent growth since 2014 and the relatively stable supply outlook.
A key consideration for investors is that the deal is a capital recycling exercise. While the deal allows capitaland to divest its business park portfolio to AReit, of which it is a minority shareholder, it is also important that Capitaland maintains the quality of the AREIT portfolio and in doing so upholds the reputation of its various REITS platform.
To fund the SGD 1.66 b acquisition, A-Reit has conducted a rights issue and raised 1.31 B, most of which will be used to finance the deal. As it was previously communicated that the deal will be financed with a mixture of debt and equity, it is therefore safe to assume that A-Reit is likely to raise 3-400 million in debt to complete the acquisition.
Adding 400 million in debt will increase AREIT’s aggregate leverage to 36.3% which is well within the MAS SREIT leverage rule of 45%.
The question that we are still trying to figure out is why the Company has decided to do the rights issue at a 15% discount. While this helps to strengthen the demand for the rights issue, the question is whether AREIT can still manage to do a strong rights issue without giving the discount.