Ascendas REIT (SGX: A17U), Singapore’s oldest industrial REIT, has just announced its latest acquisition.
The REIT will acquire the remaining 75% stake in Galaxis, a business park property located in the heart of Fusionopolis, for S$534.4 million.
For context, back in March 2020, Ascendas REIT had acquired a 25% stake in Galaxis for close to S$106 million from its sponsor CapitaLand Limited (SGX: C31).
The latest move would see Ascendas REIT to take full ownership of the business park.
The total acquisition cost for the entire Galaxis development sums up to around S$640.4 million.
The property has a remaining land tenure of 51 years along with a weight average lease expiry of 2.4 years.
It has a net lettable area of close to 61,000 square metres and is 98.6% occupied as of 31 March 2021.
Post-acquisition, the REIT will own 212 properties, of which 96 are in Singapore, 37 in Australia, 30 in the US and 49 in the UK and Europe.
Here are five reasons to like Ascendas REIT’s latest acquisition.
Increases the REIT’s business park exposure
With this acquisition, Ascendas REIT will grow the asset value of its business park division by 17.6% to around S$4.9 billion.
In total, the REIT will own five properties within one-North by the end of this year.
Business parks are one of the more resilient industrial property sub-types and will be a boon for the REIT.
After the acquisition, Ascendas REIT’s business space component will increase from the current 46% to 49%.
The property is also well-located in a vibrant area of Singapore that has good connectivity.
Galaxis has direct access to one-North MRT station and is a five-minute drive from Ayer Rajah Expressway.
Long land lease tenure
Galaxis has a remaining land lease tenure of 51 years, a rarity considering JTC Corporation’s usual practice of releasing plots of land with shorter tenures of 20-30 years.
This makes the property one of the few with such a long land lease.
By acquiring 100% of the property, it will also provide the REIT with better operational control and allow for tax efficiency.
Flexibility in the use of space
The property has been zoned as a business park with a 30% “white” component to it.
“White” relates to the allowable use of the property for office, restaurant, or retail, and increases the flexibility for the landlord.
This 30% white component is higher than the typical 15% and allows the REIT to get creative in the use of the space to attract a wide array of tenants.
Assuming the white region is developed into more food and beverage or retail outlets, it will increase the attractiveness of the property in relation to other nearby business park properties.
High-quality tenants and tenant diversification
The occupancy rate for Galaxis is high and is underpinned by quality, well-known tenants such as Sea Limited (NYSE: SE), Oracle (NYSE: ORCL) and Canon (TYO: 7751).
Tenants in the information and communications technology (ICT) and electronics space tend to be more resilient in the face of the pandemic, providing a buffer for rental income in times of stress.
This acquisition will increase Ascendas REIT’s exposure to the ICT and electronics sector.
ICT’s rental contribution will inch up from 10.9% to 11.3% while electronics will see its rental income contribution rise from 6.3% to 7%.
The top 10 tenants’ contribution will also fall from 19.3% to 18.5% for the REIT, providing further diversification of rental income by tenant.
DPU and NAV-accretive
The acquisition will also provide an uplift to the REIT’s distribution per unit (DPU) and net asset value (NAV).
The net property income yield of Galaxis will be 5.3% post-acquisition, which is higher than the REIT’s current trailing dividend yield of 4.9%.
DPU will rise from S$0.14688 to S$0.14747 for a 0.4% rise, while NAV will inch up by 0.9% from S$2.21 to S$2.23.
Get Smart: Positioning for further growth
Ascendas REIT has conducted yet another quality acquisition with its purchase of the remaining 75% stake in Galaxis.
The REIT will fund this acquisition with a private placement of 142.7 million units at S$2.944 per unit.
The fundraising will lower the REIT’s aggregate leverage from 38% to 37%, allowing it to have more debt headroom to take on additional loans for more acquisitions.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
