Ascendas REIT (A-REIT) announced that its 3QFY08/09 distribution per unit increased 13.8% yoy to 4.05 Singapore cents on the back of additional rental income from new developments and higher renewal rentals. Net property income of S$74.2m is 20.9% higher yoy, of which 38.2% is contributed organically through rental rate increases across all sectors. DPU was in line with market expectation and the REIT expressed that the net property income for 4QFY08/09 should be on par with its recent performance, as only 1.6% of its lettable area up for renewal for the rest of the financial year. The ex-date will fall on 21st January and date of distribution date is on 27th February, 2009.

In a separate announcement, the manager of A-REIT is proposing an equity fundraising exercise to raise approximately S$400m by way of a private placement of 258m new units to institutional investors and preferential offering of up to 95.9m new units on the basis of one new unit for every 15 existing units. The issue price range of between S$1.13 and S$1.16 are at a discount of 7.0- 9.4% to the VWAP of S$1.2469. Proceeds from the exercise will be used to partly refinance its S$300m in debt due Aug’09 and partly fund its committed development projects. Upon completion of the exercise, the gearing is expected to decline from 42.2% to 33%.

We believe that an anticipation of a possible decline in capital values does not bode well for A- REIT, which had a relatively high gearing of 42%; hence the need for an equity fundraising. The exercise, when completed, will bring gearing down to be in line with its peers in the Industrial REITs sector. The strengthening of the capital base now will give A-REIT a first mover advantage when the need for more refinancing comes in the later years. We anticipate more equity fundraising activities in the S-REITs universe in the near term, but also noting that it will be an uphill task for the smaller REITs. A-REIT is in a better position for equity fundraising as it has always been trading at a premium over its peers, at just 30% discount to NAV. (Refer to S-REITs table below for comparison).