• 1 Science Park Drive will be redeveloped into a life science and innovation campus comprising three Grade-A business park towers with column-free floor plates of more than 3,000sqm and an event plaza. Ascendas REIT owns 34% in the redevelopment based on its GFA contribution. On a stabilised basis, the 34% stake provides NPI yield of 6.3% post-transaction cost and increase pro forma 2020 DPU by 0.5%.
• Ascendas REIT provides 2022 distribution yield of 5.3%. Maintain BUY.

What’s New

• Ascendas REIT (SGX:A17U) and CapitaLand Development (CLD) have formed a JV, Special Purpose Trust (SPT), to invest S$883m to redevelop 1 Science Park Drive (formerly TÜV SÜD PSB Building) into a life science and innovation campus.
• Creating a life science and innovation campus. The life science and innovation campus has total GFA of 116,200sqm, comprising three Grade-A business park towers – one 15- storey and the other two 9-storey – and an event plaza with retail, F&B and supporting amenities. It will provide 112,500sqm of business park space (97%) and 3,700sqm for retail and F&B uses (3%). The three buildings are mostly column-free and have efficient floor plates of more than 3,000sqm. The event plaza can accommodate 500 people, including an amphitheatre with seating capacity of up to 300. The buildings share an interconnected basement with sheltered connectivity to the Kent Ridge MRT station.
• Ascendas REIT owns a smaller 34% stake. CapitaLand Development (CLD) is the head leasee of Science Park 1 and Science Park 2. Being the head leasee, CLD holds the rights to land intensification. URA has approved the increase in plot ratio by threefold from 1.2 to 3.6 for the redevelopment. Ascendas REIT contributes GFA of 38,200sqm based on current maximum allowable plot ratio of 1.2. CLD contributes GFA of 74,300sqm from the approved land intensification. CLD and Ascendas REIT own 66% and 34% of SPT based on their respective GFA contribution.

Targeting biomedical R&D.

• 1 Science Park Drive is an ideal location for biomedical to realise divestment gain of S$12.5m above book value of S$90m. Proceeds from the divestment will be utilised to fund its cost of equity investment at S$131.9m.

Valuation & Recommendation

• We maintain our existing on DDM (cost of equity: 6.0%, terminal growth: 1.8%).

• Catalysts:
  • Resiliency from business parks, logistics and data centres segments.
  • Contributions from development projects and asset enhancement initiatives (AEI).

Source: UOB Kay Hian Research - 17 Nov 2021