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A-REIT: New Acquisition To Lift Yield?
Tradeable, Tradeable Ideas | 03 July 2014
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By: Raymond Leung
Articles (142) Profile
  1. A-REIT’s purchase of HIC appears to be at a discount (total purchase consideration of $191.2 million versus valuations of $197 million.
  2. Good quality tenants which will help increase A-REIT’s weighted lease expiry.
  3. At 100 percent occupancy, the HIC acquisition will be yield accretive and thus possibly add to future DPUs.

Analysts updates on Ascendas REIT

On Monday, Ascendas REIT (A-REIT) made its first acquisition on 2014 as it acquired the Hyflux Innovation Centre (HIC). The trust purchased the 10 storey high specification building located within Kallang Industrial Estate for $170 million.

In addition, A-REIT will have to pay Jurong Town Corporation (JTC) an upfront land premium of $21.2 million for the remaining tenure of its 30 year lease term.

This will bring the land tenure to 58 years and 10 months (30 + 28 years 10 months; from Feb 2010) and the total purchase consideration to $191.2 million. Based on valuations by DTZ Debenham Tie Leung, HIC is believed to be worth $197 million.

Currently, the occupancy rate for HIC stands at 83.9 percent with Hyflux leasing back 50 percent of its gross floor area for 15 years. The property also has a number of good quality tenants. These include American Express, Covidien, NEC and Renesas Electronics.

This will allow A-REIT to broaden its tenant base and diversify its portfolio property mix.

Source: A-REIT, Portfolio Property Mix

Weighted lease expiry of A-REIT’s portfolio will be extended to 3.96 years from the current 3.85 years. The portfolio land lease tenure will also be increased from the current 46.41 years to 46.65 years.

Source: A-REIT, Portfolio Lease Expiry

Hyflux will provide rental support for the first three years for the vacant spaces which currently account for 16.1 percent of the property’s gross floor area.

With 100 percent occupancy, the property is expected to produce a net property income yield of 6.98 percent for the first three years. HIC is projected by A-REIT to have a positive impact on its distribution per unit by $0.00118.

In view of the new acquisition, analysts at Maybank Kim Eng Research remain positive towards the prospect of the REIT. They reiterated A-REIT’s “Buy” call with a potential upside of 14.22 percent.

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Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.

Ascendas REIT  3.110 -0.03 -0.96%   
Business: Co invests in the real estate markets of Singapore and Australia.

Insight: Apr-19, FY19 gross revenue and NPI inched up 2.8% ... Read More

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