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Ascendas REIT buys DNV GL and DSO National Lab Buildings, leases back to them for 16.5 years

One of Singapore’s largest REIT, Ascendas REIT (6.7% dividend yield) continues to show their ability to rejuvenate and tweak their portfolio by purchasing 3 blocks of office buildings in Science Park Drive.

With the acquisitions, a large part of science park 1 belongs to them. Even in this challenging climate, where industrial supply is increasing, they are not afraid to make acquisitions. It seems since their huge Australia deal, they have been going non stop after being rather dormant for a while.

This acquisition, while small, lengthens the WALE from 3.7 year to 4.4 years. Indeed, it is not often we get a landlord in Singapore willing to rent to a tenant for 16.5 years.

The usual lease tenure is 3 years plus the option to extend for 3 more years.

The last time I encounter one such long lease belongs to an office building by Hwa Hong where the property is leased for 16 years, which is the same duration as the land lease.

This property:

  • Has a annual rental revenue escalation of 2.2% to 2.5%
  • An NPI Yield of 6.0%
  • Not likely to affect the DPU much
  • Will be finance by $100 mil issuing of new units to the Vendors, internal resources and debt
  • Triple Net Lease means the rent revenue is likely to flow straight to net property income
  • Has an outstanding land lease of 64 years, which is plenty in this new industrial landscape where new industrial building will have land lease of only 30 years

All the acquisitions made have longer land lease, a 6% NPI yield. It makes us wonder if Ascendas will sell or actively redevelop a lot of their fragmented older buildings.

The counter party is good as well, since one of them is a close working partner of the Singapore government.

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