jeremyowtaip
Hi , I think the private placement will have little effect on the dilution of units in Ascendas REIT (A-REIT) as based on their announcement, the number of new units issued under private placement is only about 6.1% of the total number of existing units. I did an estimation of the theoretical ex-placement price to be around $2.63. The market somehow knows how to price the unit price correctly as it last closed on past Friday also at $2.63.
Based on A-REIT's own announcement on their rationale for the private placement, it was meant to raise funds for acquisition of a UK portfolio of 12 properties which A-REIT thinks will increase long term distributions for unitholders. The funds raised from private placement was also to be used for a built to suit property development, for repayment of some debts, for reducing their gearing, for setting aside some cash for future acquisitions and also to increase trading liquidity of it's units. It seems that A-REIT has good rationale for doing this private placement. I provide a link below for further read on A-REIT's recent private placement.
I also made some comparisons below between A-REIT and AA-REIT which I am currently vested in the latter to see which has been a better performer over the past 9 years. I have been wanting to do this comparison for long time already. Now that you asked me why A-REIT has traded at a higher premium in terms of higher P/NAV ratio than it's peers, I believe there must be good reasons for it being a higher priced investment than other of it's peers. Let us see below.
Over the past 9 years, A-REIT has grown it's revenue at a CAGR of 9.02%. It has grown it's net property income at a CAGR of 8.72%. It has grown it's distributions to unitholders at a CAGR of 9.27%. It has grown it's value of investment properties at a CAGR of 9.63%.
Now, let us take a look at AA-REIT's performance for the past 9 years. AA-REIT has grown it's revenue at a CAGR of 9.7%. It has grown it's net property income at a CAGR of 8.44%. It has grown it's distributions to unitholders at a CAGR of 12.05%. It has grown it's value of investment properties at a CAGR of 9.6%.
Based on the above important comparison metrics, we can see that both REITs are quite similar in their growth performance. Therefore, A-REIT is certainly trading at a higher valuation than AA-REIT even though they are quite comparable in their growth performance over the past 9 years. Probably, investors are paying a higher premium for a larger industrial REIT in A-REIT which has some good amount of overseas exposure in UK and Australia. As for AA-REIT, they only have overseas exposure in one freehold business park property in Australia currently leased to Singtel Optus.
It really depends on individual investor's choice. If one is looking at more diversification across more geographical regions in a larger size industrial REIT, then A-REIT is a potential investment candidate. If the investor does not mind a smaller REIT with less overseas exposure but nevertheless has quite decent performance to it's larger peer and trading slightly cheaper in valuation, AA-REIT is a potential investment candidate.
Do note that my sharing is by no means a complete exhaustive discussion and conclusion on the investment worthiness of both REITs. Nevertheless, it is a starting point on some important comparisons between both REITs.
"Hot stock: Ascendas Reit units down 2.6% after manager prices S$452m placement at S$2.54 per unit" by The Business Times
https://www.businesstimes.com.sg/companies-markets/hot-stock-ascendas-reit-units-down-26-after-manager-prices-s452m-placement-at-s254
simonloo
Reply to @jeremyowtaip : Good write up. I always wanted to buy Ascendas Reit but wonder what would be a “good” entry price as now. Any advise?
Bobbilipuli
Reply to @jeremyowtaip : Excellent write up! May I also add one thing- "brand equity". Ascendas benefits from its name and visibility all over SG just like Mapletree group. This plus the facts that you set up gives it an edge. Am vested in both and look forward to topping up both at next pull back!
Sporeshare
Reply to @jeremyowtaip : TQ! You are really an experience and wise detail investor! Is always good to hear your view ! Would analyse and make my own judgement!! Have a nice day!
A very fundamental difference between these 2 Reit is the quality of their portfolio. Ascendas Reit is like a condo in a prime locale vs a suburban Condo for AA reit. There is just no comparison. Incidentally I have both of them in my portfolio.
ReplyDeleteoic! is good to hear different view.
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