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A-Reit's acquisition of business park assets marks foray into US

It is acquiring 28 US and two Singapore properties from sponsor CapLand for S$1.66b

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The multi-tenanted property at 15435 Innovation Drive in San Diego is among A-Reit's 28 American freehold office properties. William Tay, the CEO of the Reit manager, said the Reit will also look at other tech cities in the US.

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Lee Chee Koon, group CEO of CapitaLand, says the proposed divestments of the US business park properties to A-Reit will enable CapLand to unlock capital value.

Singapore

ASCENDAS Reit (A-Reit) is making its foray into the United States along with its biggest acquisition, as it plans to acquire 30 business park properties in the US and Singapore from its sponsor CapitaLand for some S$1.66 billion.

The Reit has entered into agreements to acquire 28 business park properties for about US$938 million in the US tech cities of Raleigh, Portland and San Diego; these were acquired by the Ascendas-Singbridge group in September last year.

The remaining two properties are in Singapore.

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CapitaLand, which recently completed an acquisition of Ascendas-Singbridge, is expected to reap an estimated gain of S$95.4 million from the divestment.

The freehold business park properties in the US span a net lettable area (NLA) of 310,102 sq m. Tenants include CareFusion Manufacturing, TD Ameritrade, Oracle and Nike.

These US properties will make up about 10 per cent of A-Reit's total asset value; the proportion of overseas investment is expected to increase to 28 per cent of total asset value.

The two Singapore business park properties are Nucleos at Biopolis and FM Global Centre in Singapore Science Park 2, which have a NLA of about 49,760 sq m. These are valued at S$380 million.

The proposed acquisitions will strengthen the Reit's existing business and science-park portfolio, and bring its investment in the business and science park segment to 42 per cent of its total asset value of S$12.8 billion, it said.

The occupancy of the US properties was 93.7 per cent as at Sept 30, while that for the Singapore properties stood at 94.6 per cent.

The Singapore properties have a weighted average lease to expiry (by gross rental income) of 6.9 years. The proposed acquisitions are expected to generate a first-year net property income yield of about 6.3 per cent (post-transaction costs).

The acquisition will be funded by a S$1.3 billion rights issue, with another S$394.3 million from loan facilities and S$16.6 million through the issuance of acquisition fee units.

Ascendas Reit will issue some 498 million rights units at S$2.63 per unit, which represents a 17 per cent discount to the closing price of S$3.17 per unit on the Singapore Exchange on Oct 31, the last trading day prior to the announcement.

Sixteen rights units will be offered for every 100 existing units of Ascendas Reit held.

The sponsor has undertaken to subscribe for its pro-rata entitlement and maintain its stake at 19 per cent, with the balance fully underwritten by DBS Bank and J.P. Morgan, the joint lead managers.

Following the rights issue, the Reit's aggregate leverage is expected to improve from 36.2 per cent as at Sept 30 to 34.6 per cent, which will give it headroom to look at acquisitions for future growth, it said.

At a briefing on Friday, William Tay, executive director and chief executive officer of the Reit's manager, highlighted that the Reit will also look at other tech cities in the United States as it expands its presence.

"We have observed that other tech cities (have) cap rates within our range. This is a scalable business for A-Reit," he said.

At the same time, he added that the Reit will continue to look at opportunities for growth in its two other overseas markets, the United Kingdom and Australia, as well as in Singapore.

At home, it is in talks with its sponsor on how it can collaborate on the latter's efforts to rejuvenate the Singapore Science Park.

In response to a question about lower occupancies at some of the US properties it is planning to acquire, Mr Tay said the vacancy rate for its properties in the three US cities are either in line with, or lower than, the market rate. "We are confident that we can lease out more space," he added, pointing to the team that it has on the ground there.

Following the acquisitions, Ascendas Reit's pro-forma distribution per unit (DPU) is expected to rise to 16.136 Singapore cents, delivering a DPU yield accretion of about 3 per cent.

Lee Chee Koon, group chief executive of CapitaLand, said: "The enlarged CapitaLand portfolio following our combination with Ascendas-Singbridge has provided us with a robust pipeline of quality assets and additional Reit vehicles for recycling assets.

"The proposed divestments of the 30 business park properties in the US and Singapore to Ascendas Reit will allow CapitaLand to unlock capital value for reinvestment and redeployment."

CapitaLand will continue to manage the properties and receive a recurring fee income.

The deal is subject to the necessary approvals, including from the Reit's independent unitholders and the relevant authorities.

Units of Ascendas Reit were halted from trading on Friday; shares in CapitaLand closed five cents higher at S$3.65.

READ MORE: Ascendas Reit's Q2 DPU up 2.3% on overseas acquisitions