Ascendas REIT (SGX: A17U) is Singapore’s first and largest industrial REIT. It has 102 properties in Singapore and 28 properties in Australia comprising business & science parks, industrial properties, and logistics centres.
I attended A-REIT’s most recent EGM where unitholders had to vote on the proposed $420 million acquisition of three science park properties located at 12, 14 and 16 Science Park Drive, Singapore.
The EGM was among the fastest meetings I’ve attended thus far with unitholders overwhelmingly in favour of the proposed acquisition. (I guess people can agree on things quickly when a deal makes very good sense!)
So why was A-REIT’s proposed acquisition voted through so fast? Here are 10 things I learned from Ascendas REIT’s January 2017 EGM:
- A-REIT is acquiring three science park properties located at 12, 14 and 16 Science Park Drive, Singapore. The blocks are located in Singapore Science Park near Kent Ridge MRT and the National University of Singapore. The buildings are new, about two years old, and built with high-grade technical specifications. A-REIT is purchasing the properties at a slight 2% discount on valuation from its sponsor, Ascendas Singbridge Group.
- The properties are 100% occupied by two high-quality tenants: DSO National Laboratories which is Singapore’s national defence R&D organisation, and DNV GL Singapore – a Norwegian risk management company.
- The properties have a very long weight average lease expiry (WALE) of 16.2 years with built in rental escalations of 2-2.5% per annum. The land tenure of 64.4 years is similarly lengthy given the Singapore government’s policy to shorten industrial land leases to 30 years or less. The acquisition will increase A-REIT’s overall WALE from 3.7 years to 4.2 years.
- The acquisition is yield and DPU accretive. Distribution per unit (DPU) is expected to increase by 0.061 cents. The assets’ net property yield is 6% compared to A-REIT’s current overall property yield of 5.6%.
- The acquisition will be funded by loans and issuance of new consideration units to the sponsor, Ascendas Singbridge Group. $322 million will be provided through existing debt facilities and internal resources, and $100 million will be raised by the issuance of new consideration units to the sponsor. The partial use of debt will allow A-REIT to maintain a gearing ratio of 33.6% and an A3 credit rating from Moody’s which allows the REIT to secure loans at competitive rates. The issuance will increase Ascendas Singbridge Group’s overall stake in A-REIT to 19.9%.
- In short, unitholders don’t have to come up with any money to fund the acquisition as the money will come from loans and the REIT’s sponsor. Although unitholders will face some dilution (due to the new consideration units issued to the sponsor), the deal is still ultimately DPU accretive for unitholders.
- The management views that the acquisition will be beneficial for the REIT as the properties are stable and resilient considering the long WALE and land tenure, annual rental escalations, and quality of tenants. Unitholders had the same opinion as the two resolutions, to approve the acquisition of the properties and the issuance of new units to the sponsor, were voted through 100% and 99.99% respectively at the EGM.
- Before the resolutions were put to a vote, a unitholder asked if there was a difference between a science park and business park in terms of restrictions on tenant mix, facility usage and cost structure. CEO Chia Nam Toon replied that a science park is essentially a business park. The term is only used because the government set up the Singapore Science Park in 1980 to provide infrastructure for R&D to flourish in Singapore.
- Another unitholder pointed out that the properties’ rental rate, at $2.90 per square foot, was low compared to the business park average of $5-6 per square foot. The CEO responded that the properties are on a triple net lease which means the tenant is responsible for paying their own building maintenance costs, property insurance, and real estate taxes, on top of monthly rentals and utilities. The CEO then said that the acquisition is still yield and DPU accretive with built-in rental escalations for the entire 16 year lease.
- Another unitholder asked if the board was considering any divestments since the REIT seemed to be acquiring more and more properties. Chairman Koh Soo Keong assured the unitholder and mentioned that the REIT recently divested its business park property in Shanghai. He further shared that the board is aware of the need to recycle the REIT’s capital to acquire better-quality buildings with higher yields.
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(Photo: DNV GL)