A-REIT – DBSV

Positioning for future growth

• Cash call to fund recent acquisition/development activities

• Dilution in FY12F but earnings kicker in FY13F

• Maintain HOLD with S$2.15 TP.

New acquisition coupled with an equity fund raising. In 2 separate announcements, Ascendas REIT announced (1) acquisition of Neuros & Immunos, located at Biopolis, for S$125.6m and (2) A private placement to raise S$400m gross proceeds at S$ 1.91-1.96/unit, representing a 4.3-6.7% discount to its VWAP on 30 Mar. We note that the placement was completed, priced at S$1.94/unit

(1) Acquisition of Neuros & Immunos for S$125.6m. Located in an emerging research hub for biomedical services at One-North, Neuros & Immunos is a multi-tenanted research and office building, and houses firms involved in neuroscience and immunology research. While we note that it caters to a specialized field, the building is understood to be 100% leased.

(2) Gross proceeds of S$400m to fund recent acquisition & development activities. Proceeds will be deployed towards its ongoing Build-to-Suit development project, selected enhancement works at Techview & 10 Toh Guan Road, forward acquisition of a business space property in Shanghai and Neuros & Immunos. We estimate these properties to return a weighted average projected yield of 7.5% vs implied cost of capital of 7.0%, hence these projects are earnings accretive.

Near term dilution, DPU growth from FY13 onwards. While we estimate there will be DPU dilution in FY12F, unitholders can look forward to a 5% uptick in DPU in FY13F as a majority of its projects are expected to start contributing positively from FY12F/13F. Our FY12-13F distribution income are adjusted downwards by 3-7% to take into account the fund raising, with TP accordingly revised down slightly to S$2.15.