SINGAPORE (Sept 26): RHB is maintaining its “buy” recommendation on Ascendas REIT (A-REIT) with a target price of $2.90.
This follows A-REIT’s Monday announcement it has completed the acquisition of No. 100 Wickham Street (100WS), a CBD fringe office property in Queensland, Australia, for $90.3 million, from seller 100W.
See: Ascendas REIT acquires CBD fringe office property in Australia for $90 mil
The 14-storey freehold property has a total lettable floor area of 13,131 sqm and is located 450m from Brisbane’s CBD with convenient transport connectivity.
In a Tuesday report, analyst Vijay Natarajan says, “The property offers an underlying net property income (NPI) yield (post-transaction cost) of 7.1% higher than A-REIT’s (FY17) portfolio yield of 6.2%.”
According to the analyst, the asset is DPU accretive with a FY17 pro-forma accretion of 0.3% yield and has an in-built rent escalation of 3% to 4% per annum which can further enhance the yield.
In addition, the property is currently fully occupied with quality tenants such as the State of Queensland (Department of Health) and three data centre operators.
Natarajan notes that these tenants are “sticky” in nature and thus will provide earnings stability.
100WS has a weighted average lease to expiry (WALE) of 4.8 years, higher than the trust’s portfolio pro forma WALE of 4.3 years.
Following the acquisition, the exposure to Australia accounts for 15% of the trust’s total asset value with Brisbane being the second biggest market after Sydney (47%) in its Australia portfolio, accounting with about 26% of its asset value of $1.4 billion.
“We like A-REIT’s strategy of increasing exposure to Australia as the assets are mainly freehold in nature, provide stability with their triple net lease structure and have in-built annual rental escalations,” says Natarajan.
The trust is funding the acquisition through debt and internal resources.
Assuming a comfortable gearing of 40%, A-REIT will still have a headroom of $1 billion for additional acquisitions.
As at 9.45am, units in A-REIT are trading at $2.67 or 1.19 times FY17 book value with a dividend yield of 5.9%.
