Understanding the Recent Purchases of Ascendas Real Estate Investment Trust

If you own units of Ascendas Real Estate Investment Trust (SGX: A17U) or have been following the REIT’s developments, you may have noticed that the last four months of 2015 was a busy time for it.

During that period, the REIT had sought to acquire a total of 28 properties in three different transactions. 27 properties were located in Australia, a new geographical location for the REIT, and the remaining one is in Singapore. The latter property, once successfully acquired, will bring Ascendas REIT’s property count in Singapore to 103; the REIT also has two other properties in China.

Let’s have a closer look at the acquisitions and what they mean for the REIT and its investors.

The first acquisition, which has been completed, involved the purchase of 26 properties in Australia for A$1.1billion. The purchase was funded with a mixture of bank loans and the issuance of perpetual securities. The REIT took on a A$600 million loan and issued S$300 million worth of perpetual securities that carry an annual interest rate of 4.75%.

The acquisition is expected to generate a net property yield of approximately 6%. This is higher than the funding costs that will be paid out for the perpetual securities. However, it is not mentioned on the REIT’s website if the debt carried interest rates that are higher or lower than the yield.

The other two acquisitions, one regarding the aforementioned Singapore property and another for an Australian property, had cost S$439 million and S$82 million respectively. These purchases were funded with a mixture of options.

Ascendas REIT had issued S$210 million in consideration units to the vendor for the purchase of the Singapore property. Apart from that the REIT also raised S$200 million from a private placement and is currently in the midst of raising another S$209.5 million in gross proceeds from a preferential offering to existing investors.

By using multiple funding methods, it makes it difficult for investors to determine whether Ascendas REIT’s acquisitions will be distribution-accretive. Although the REIT has put out pro forma data on this matter, it may not accurately reflect what might happen in the future as the pro forma numbers are based on estimates of the funding structure and historical figures.

In its last-reported earnings, Ascendas REIT had a distribution payout of S$0.08 per unit for the first six months of its fiscal year ending 31 March 2016, which implies an annualized distribution of S$0.16. At the REIT’s current unit price of S$2.25, this implies a yield of 7.1%.

In the aforementioned earnings release, the REIT’s results did not reflect the impact of the three acquisitions. Investors can only accurately know if these acquisitions were astute and yield-accretive when the properties contribute to the REIT’s bottom-line in the coming quarters.

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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 Esjay does not own shares in any companies mentioned.