Ascendas Real Estate Investment Trust’s Venturing Into Australia: What You Need To Know

Ascendas Real Estate Investment Trust (SGX: A17U) used to be a Singapore-centric REIT but that’s about to be changed.

According to a July 2015 investor presentation, the REIT has 103 properties in Singapore (consisting of business & science parks, industrial real estate, logistics facilities, and more) and just two business parks in China which account for merely 4% of its total asset value.

In an announcement made earlier today, Ascendas REIT revealed that it wants to acquire 26 logistics properties in Australia for a total sum of A$1.013 billion (roughly S$1.01 billion) from GIC, one of the investment arms of Singapore’s government, and Frasers Centrepoint Ltd (SGX: TQ5).

Given that the REIT has a total asset base of S$8.2 billion as of 30 June 2015, this new acquisition is clearly a significant deal. What does it mean for Ascendas REIT?

The deal’s advantages

Ascendas REIT sees a number of advantages with the deal.

First, the acquisition can extend the REIT’s weighted average land lease to expiry to 162 years from 55 years.

Second, there are built-in annual rental increases of 3.3% on the Australian properties; this can be a source of organic growth for Ascendas REIT in the future.

Third, it helps the trust diversify away from Singapore. If the acquisition proceeds as planned, Ascendas REIT will become Australia’s eighth largest industrial landlord; the REIT’s overseas portfolio segment will also grow from just 4% of total assets under management (AUM) currently to 14%.

Mode of payment: An important detail

Ascendas REIT’s Manager is planning to fund part of the acquisition of the Australian properties via A$600 million in onshore loans in Australia. The rest of the sum will be covered through the issue of perpetual securities; the cost of the perpetual securities have yet to be determined.

Without new units having to be issued, existing unitholders of the REIT won’t have to face dilution.

The juicy benefits

What benefits might Ascendas REIT’s investors derive from the deal? Based on the Manager’s number crunching after taking into account the additional interest expenses from the new onshore loans and perpetual securities, Ascendas REIT’s distribution per unit (DPU) should step up by 3% to 3.5%. This represents an increase from a base DPU of 14.6 cents (for the fiscal year ended 31 March 2015) to 15.0-15.1 cents.

But there are drawbacks of course – the REIT’s gearing is also projected to rise from 34.7% to 37.3%.

Foolish Summary

Summing it all up, Ascendas REIT’s proposed acquisition will be able to help diversify its portfolio geographically, lengthen its average land-lease period, and bump up its distributions. Given the weak outlook in the Singapore industry property outlook, maybe this deal will add another growth engine for Ascendas REIT.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim owns shares in Frasers Centerpoint Ltd.