Deal Marks Europe Entry, BUY

• Ascendas REIT has marked its entry into Europe with its latest acquisition of a UK freehold logistics portfolio, with risks largely mitigated by its long WALEs and high-quality tenancies. Low GBP-denominated debt funding costs have enhanced yields to drive a +1.2% DPU accretion, while favourable macros should support a stronger medium term rental outlook on its assets. 
• Ascendas REIT’s portfolio diversification efforts have accelerated under its new CEO with the announcement of this deal. We see further momentum as it targets to scale its Europe AUM. 
• We are keeping our forecasts for now with 1Q19 results to be announced on 30 Jul. 
• Valuations based on our DDM-based SGD3.05 Target Price (WACC: 7.0%, LTG: 1.5%) remain undemanding given its scale, liquidity and improving fundamentals. BUY.

Acquires UK Logistics Portfolio at 5.3% NPI Yield

Ascendas REIT announced a portfolio acquisition of 12 freehold logistics properties in the UK for GBP207.3m (SGD373.2m). The properties are fully occupied with WALE at 14.6 years and tenants include DHL, Bibby Distribution, and Amazon, amongst others. This deal should boost Ascendas REIT’s portfolio WALEs from 4.2 to 4.4 years. 

The acquisition will be funded by GBP-denominated debt – a five-year fixed term loan with all-in interest cost at 2.6-2.8%, with the first year NPI yield expected to be 5.32% (5.22% post-cost yield) and DPU accretion at +1.2% or S0.194cts. 

Ascendas REIT raises its overseas investments from 15% to 17% of total assets, as aggregate leverage rises from 34.4% to 36.7%, with an estimated debt headroom of SGD600m to support further deals.

Source: Maybank Kim Eng Research - 27 Jul 2018