Ascendas REIT (A-REIT) has proposed to acquire the leasehold interest in the property located at 12, 14 and 16 Science Park Drive from its sponsor. The property comprises three built-tosuit Science Park buildings held under a single land title.

Two of the buildings are leased to DSO National Laboratories, Singapore’s national defence research & development organisation, while the third building is leased to DNV GL Singapore Pte Ltd, a Norwegian risk management company, for its South East Asia regional headquarters. The purchase consideration of S$420m comes in below the two independent valuations of S$428.8m and S$430.0m.

Including acquisition fees, stamp duties and other professional fees, the total acquisition cost is estimated to be S$437.5m. Of this, the acquisition fee (S$4.2m) would be funded by the issue of units, S$100m would be satisfied by the issue of consideration units to the vendor and the balance would likely be debt funded.

We are positive on this transaction as the acquisition would boost A-REIT’s portfolio WALE to 4.4 years from 3.7 years and the leases also have weighted built-in rental escalations of 2.2% to 2.5% per annum. The property is expected to generate a NPI yield of approximately 6.3% (before acquisition costs) and 6.0% (post-acquisition costs) in the first year of ownership.

Maintain BUY and S$2.67 fair value estimate on A-REIT.

Source: OCBC Research - 6 Dec 2016