A-REIT – OCBC

Buying Neuros & Immunos & Private Placement

Proposed Acquisition. Ascendas REIT (A-REIT) announced yesterday its proposed acquisition of Neuros & Immunos, located at Biopolis, from its sponsor for S$125.6m. Neuros & Immunos is a 7-storey business/science park building sited on a land area of 8,051 sqm with a 30+30 years land lease tenure effective from Feb 2005. It has a GFA and NLA of 36,931 sqm and 28,345 sqm respectively. These properties are currently 100% occupied, largely by biomedical companies with three-year rolling leases. The proposed acquisition will further diversify A-REIT’s portfolio of properties as well as the tenant-mix.

Private Placement. In addition, A-REIT closed a private placement of 209,186,000 new units yesterday evening at an issue price of S$1.94 to raise proceeds of approximately S$406m. The proceeds will be utilised in the following manner: (1) ~S$125.6m for acquisition of Neuros & Immunos; (2) ~S$117.6m to fund A-REIT’s forward purchase of a business space property in Shanghai; (3) ~S$35.9m to fund A-REIT’s eleventh development project for the construction of a BTS logistics facility next to the Airport Logistics Park; (4) ~S$97m to fund A-REITs ongoing asset enhancement initiatives at Techview and 10 Toh Guan Road and redevelopment of FoodAxis @ Senoko; (5) ~S$6.7m to pay the estimated fees and expenses incurred by A-REIT, and the balance (~S$23.2m) will be used for general corporate and working capital purposes. A-REIT will also declare an estimated cumulative distribution of 3.69 S-cents for the period from 1 Jan 2011 to the day immediately prior to the date on which the new units are issued (expected on 11 Apr 2011). The book closure is on 8 Apr and payment is around 9 May.

Dilutive Effects. A-REIT is presently also in discussion on a potential S$200m acquisition. Pending final negotiations, the transaction might be completed within the next 3-6 months. In addition, the Manager believes that there are other opportunities for BTS developments and asset enhancement initiatives ahead. Nonetheless, the private placement represents an increase of 11.2% of the total number of units in issue as at 30 Mar 2011. The dilution factor thus works out to about 10.1%. A-REIT is trading at a current PBR of 1.27x vis-à-vis its historic PBR of 1.39x since IPO. We also noted that the offer price denotes a 9.35% discount from its share price high of S$2.14 on 26 Jan (after previous ex-date). We are wary of the dilutive effects on existing shareholders (especially retail investors), given the fairly sizeable discount granted to new private placees, in our opinion. Maintain HOLD with a reduced fair value of S$2.12.