Ascendas, Mapletree and Soilbuild in final 3 battle to control JTC’s flatted factory sale

A unit of Ascendas group (which could be A-Reit), Mapletree Industrial Trust (MINT) and Soilbuild Group are said to have been shortlisted to take part in the second and final round of bidding for JTC Corporation's flatted factories and amenity centres.

The sale involves 21 blocks of flatted factories and amenity centres, adding up to about 3.5m sf of net lettable area. These properties are located mainly in places like Kolam Ayer, Kallang Basin, Tai Seng, Bedok and Kampong Ubi, and are estimated to worth a total of $600m to $650m.

The assets will be sold in two tranches. Market expectations are that A-Reit, MINT and Soilbuild could be shortlisted to bid for one tranche of assets, while the Ascendas entity and MINT will bid for the second tranche of properties.

What it means:

i) A Reit’s gearing is currently c34%, post the private placement earlier this year and assuming that they win the Fusionopolis site. We estimate A-REIT has a debt headroom of about S$900m to reach a target gearing of 45%. MINT’s gearing is currently about 36.1%, giving a debt headroom of about $373m to reach a target gearing of about 45%. Hence, both reits have the financial muscles to undertake the acquisition with A-Reit having a stronger balance sheet to acquire both tranches, if possible. Overall, the acquisition will be a strong, positive catalyst for both reits as they present opportunities for strong organic and inorganic growth, if materalised.

ii) Allow them to increase their portfolio sizes at an accelerated mode. We understand that there are no rental caps imposed on these properties, which would allow upward rental reversions as the existing leases could be contracted below market rates.

iii)Assuming that A-Reit and MINT acquire 1 tranche each worth about $300m at 7% NPI yield, fully funded by debt, DPU could grow by about 2 - 3% in FY2012.