A-REIT – UOBKH

Upside Limited After Factoring In Dilution

Embark on equity fundraising. Ascendas REIT (A-REIT) has launched a private placement of 185m new units at S$1.63 to S$1.70 each, or 3.8% to 7.8% discount to the volume-weighted average price on 7 Aug 09. This is the second private placement this year. The equity fundraising exercise is expected to raise gross proceeds of S$301.6m, which will be used in the following manner:

• S$175.4m will be used to fund the development of a hi-tech built-to-suit facility for Singapore Telecommunications (SingTel),
• S$120.6m will be used to fund potential acquisitions of income-producing properties and built-to-suit development opportunities in the pipeline, and
• The balance will be used for general corporate and working capital purposes.

The book building process started yesterday and is expected to be completed by 12 Aug 09. A-REIT’s gearing will be reduced from 35.7% to 29.3% after completion of the private placement.

Downgrade to HOLD. We have cut DPU forecast for FY11 by 6.7% to 11.2 cents due to dilution from the private placement. We have also factored in contributions from the built-to-suit facility for SingTel starting 1QFY11. Share price has gained 29.4% ytd and upside is limited after factoring in dilution from the private placement. Our fair price of S$1.81 is based on the Dividend Discount Model (required rate of return: 7.7%; growth: 2.5%).