Research from SooChow CSSD Capital Markets (Asia), SCCM Asia Research

SCCM Asia Research

Headquartered in Singapore, SooChow CSSD Capital Markets (Asia) is an investment bank focusing on emerging growth companies across Asia, providing a full suite of investment banking services, including corporate finance, mergers and acquisitions advisory, equity capital markets, institutional equities sales and trading and equities research.

Research from SooChow CSSD Capital Markets (Asia)

Thematic (Sector/Industry)

Cambodia Real estate / Thematic (Sector/Industry)

<h2>Singapore</h2><h3><a href="https://www.smartkarma.com/entities/ascendas-real-estate-investment-trust" target="_blank" data-smartkarma-citation="entities:39" rel="noopener">Ascendas Real Estate Investment Trust (AREIT SP)</a> to acquire 75% interest in Galaxis for S$534.4m; +ve on AREIT’s virtuous cycle of inorganic growth (BUY TP S$3.55/unit)</h3><ul><li>AREIT intends to acquire the remaining 75% equity stake in Galaxis from Ascendas Fusion 5 Holding for S$534.4m. This acquisition will enlarge the business and science park portfolio in SG by 17.6% to S$4,871.1m, total NLA by 8.8% to 750,915sqm and increase the number of properties in one-north business park to 5 (including Grab’s HQs which is under development and expected to complete in 2021)</li><li>Galaxis is strategically located right in the heart of One-North, a vibrant business park in Singapore, and directly above the One-North MRT station. It is a rare high quality and green certified business park property with: (i) a long remaining land lease tenure of ~51 years; and (ii) high 30% White Component (vs. the typical 15%). It currently offers a range of business spaces and amenities across its NLA of 60,935sqm, out of which 73% is business park space, 17% is office space, 7% is retail and F&amp;B space, 3% is work lofts, and a two-storey basement carpark. AREIT will also benefit from the addition of renowned tenants such as Sea (formerly Garena), Canon and Oracle, amongst others. As at 31Mar21, Galaxis’s WALE stood at 2.4 years and enjoys a high occupancy rate of 98.6%</li><li>Based on the proposed acquisition (75% interest), NPI yield for the first year is 5.4%/5.3% pre-/post-transaction costs, respectively. The pro-forma impact on FY20 DPU is expected to be an improvement of S$0.059c (0.4% DPU accretion), based on 40% debt and 60% equity funding (including S$240.1m from EFR and S$83.0m of New Units payable to Vendor), as well as Manager’s base fee paid by 80% in cash and 20% in units. NAV is also expected to increase by S$2c to S$2.23/unit</li><li><p>AREIT plans to launch a private placement to raise ~S$420.0m, which will be utilized for: (i) ~S$240.1m (57.2% of the gross proceeds) to partially fund the proposed acquisition; (ii) ~S$173.4m (41.3%) to be used for debt repayment purposes (thus reducing its aggregate leverage from ~38.0% to ~37.0%); and (iii) ~S$6.5m (1.5%) to pay the estimated fees and expenses. In connection with the EFR, the manager intends to declare an advanced distribution of ~S$5.63c to existing Unitholders.</p></li></ul><p>Comments: AREIT’s robust valuation (current trailing P/B of 1.41x and ~5% FY21E dividend yield) and market landscape (low cost of debt) promote a favorable backdrop for EFR and an accretive acquisition. We believe AREIT remains in a virtuous cycle of growth, as the EFR will lower its gearing, thus enhances its financial flexibility for further acquisition. We are positive of this acquisition despite offering only a 0.40% DPU accretion. Notwithstanding that Galaxis is a rather new asset (completed in 2015), combined with its strategic location and certified with highest BCA Green Mark Platinum rating, we believe the property could command a higher than market average rental and occupancy rate. This bodes well with AREIT having full ownership of the property, which allows better operational and tax efficiency. Post-acquisition, AREIT’s portfolio will be further diversified in terms of geography, asset class, as well as clients’ base. Notably, Galaxis’ independent market valuation has increased ~13% from S$650m in 26Mar20 to S$735m as at 30Apr21. We have a BUY rating with TP of S$3.55/Unit.</p>

SingaporeAscendas Real Estate Investment Trust (AREIT SP) to acquire 75% interest in Galaxis for S$534.4m; +ve on AREIT’s virtuous cycle of inorganic growth (BUY TP S$3.55/unit)AREIT intends to acquire the remaining 75% equity stake in Galaxis from Ascendas Fusion 5 Holding for S$534.4m. This acquisition will enlarge the business and science park portfolio in SG by 17.6% to S$4,871.1m, total NLA by 8.8% to 750,915sqm and increase the number of properties in one-north business park to 5 (including Grab’s HQs which is under development and expected to complete in 2021)Galaxis is strategically located right in the heart of One-North, a vibrant business park in Singapore, and directly above the One-North MRT station. It is a rare high quality and green certified business park property with: (i) a long remaining land lease tenure of ~51 years; and (ii) high 30% White Component (vs. the typical 15%). It currently offers a range of business spaces and amenities across its NLA of 60,935sqm, out of which 73% is business park space, 17% is office space, 7% is retail and F&amp;B space, 3% is work lofts, and a two-storey basement carpark. AREIT will also benefit from the addition of renowned tenants such as Sea (formerly Garena), Canon and Oracle, amongst others. As at 31Mar21, Galaxis’s WALE stood at 2.4 years and enjoys a high occupancy rate of 98.6%Based on the proposed acquisition (75% interest), NPI yield for the first year is 5.4%/5.3% pre-/post-transaction costs, respectively. The pro-forma impact on FY20 DPU is expected to be an improvement of S$0.059c (0.4% DPU accretion), based on 40% debt and 60% equity funding (including S$240.1m from EFR and S$83.0m of New Units payable to Vendor), as well as Manager’s base fee paid by 80% in cash and 20% in units. NAV is also expected to increase by S$2c to S$2.23/unitAREIT plans to launch a private placement to raise ~S$420.0m, which will be utilized for: (i) ~S$240.1m (57.2% of the gross proceeds) to partially fund the proposed acquisition; (ii) ~S$173.4m (41.3%) to be used for debt repayment purposes (thus reducing its aggregate leverage from ~38.0% to ~37.0%); and (iii) ~S$6.5m (1.5%) to pay the estimated fees and expenses. In connection with the EFR, the manager intends to declare an advanced distribution of ~S$5.63c to existing Unitholders.Comments: AREIT’s robust valuation (current trailing P/B of 1.41x and ~5% FY21E dividend yield) and market landscape (low cost of debt) promote a favorable backdrop for EFR and an accretive acquisition. We believe AREIT remains in a virtuous cycle of growth, as the EFR will lower its gearing, thus enhances its financial flexibility for further acquisition. We are positive of this acquisition despite offering only a 0.40% DPU accretion. Notwithstanding that Galaxis is a rather new asset (completed in 2015), combined with its strategic location and certified with highest BCA Green Mark Platinum rating, we believe the property could command a higher than market average rental and occupancy rate. This bodes well with AREIT having full ownership of the property, which allows better operational and tax efficiency. Post-acquisition, AREIT’s portfolio will be further diversified in terms of geography, asset class, as well as clients’ base. Notably, Galaxis’ independent market valuation has increased ~13% from S$650m in 26Mar20 to S$735m as at 30Apr21. We have a BUY rating with TP of S$3.55/Unit.

ASEAN Builder's Scoop (5May21) - AREIT Virtuous Inorganic Growth Cycle