Temasek and JTC, which wholly owns Ascendas Pte Ltd, the sponsor of Ascendas REIT (A-REIT), have entered into an agreement to merge four of their operating subsidiaries. Besides Ascendas Pte Ltd, the other three subsidiaries involved are Singbridge Group, JURONG International Holdings and Surbana International. Exclusive talks had begun in Sep 2014, as previously announced by Temasek and JTC. Two independent operating arms will be created from the four subsidiaries, with Ascendas Pte Ltd and Singbridge forming the asset investment and holding arm. The merger will not trigger any general offer obligations for the listed entities of the parties involved.

We believe it will still be business as usual for A-REIT. In our view, Ascendas Pte Ltd and Singbridge will likely increase their focus on expanding overseas, especially in China, and their enlarged scale and pooled resources will enhance their competitiveness. As a result, Ascendas Pte Ltd could also look to divest its Singapore assets to A-REIT as part of its capital recycling strategy, although negotiations will take place on an armslength basis. Maintain HOLD with a S$2.42 fair value estimate on A-REIT.

Source: OCBC Research - 17 Feb 2015