• Proposed divestment of business park in China
• Key focus will be on Singapore and Australia
• BUY with revised S$2.56 FV

Divesting its Beijing business park asset

Ascendas REIT (A-REIT) recently announced that it has entered into a Sale and Purchase agreement with Cova Beijing ZPark Investment Ltd, whereby it will divest its Ascendas Z-link property to the latter at an attributable property value of RMB760m (~S$160m).

This is a business park asset located in Beijing, China, and was acquired by A-REIT from its sponsor in Oct 2011. The proposed divestment consideration comes in favourably as compared to the asset’s valuation of RMB690 (~S$144.7m), as at 31 Mar 2016, and is also significantly above its acquisition price of RMB300m.

Based on our estimates, the property was divested at a cap rate of ~4.4%, which we view as an attractive exit yield. Net proceeds after tax and divestment costs are expected to be S$135m, which would be used to finance future acquisitions, repay existing debt and/or fund its general corporate and working capital needs.

Completion of the divestment is estimated to happen in 1HFY17.

Capital recycling strategy in place

A-REIT’s proposed divestment reflects a continuation of its capital recycling strategy in a bid to refresh its portfolio and extract value for unitholders. In FY16, management successfully sold two of its properties, 26 Senoko Way and BBR Building, at a combined sales price of S$38.7m, or 13.5% above their book value.

On the other hand, A-REIT acquired S$1.5b of assets, including making its maiden entry into the Australian logistics market.

Maintain BUY

Looking ahead, we believe A-REIT’s key focus geographically would be on Singapore and Australia. For the former, we believe the main area of growth would come from business and science park assets. In our view, A-REIT would be able to tap on its sponsor’s robust pipeline of assets within this segment.

Upcoming supply of business parks in Singapore from 2Q-4Q 2016 is also relatively limited at 139,000 sq m, representing just 5.7% of total upcoming factory and warehouse space supply.

As we fine-tune our assumptions slightly, we trim our FY17 and FY18 DPU forecasts by 0.8% and 1.1%, respectively, and derive a revised fair value estimate of S$2.56 (previously S$2.58). Maintain BUY.

Source: OCBC Research - 3 Jun 2016