The manager of CapitaLand Ascendas REIT(CLAR) is proposing to acquire 9 Tai Seng Drive and 5 Science Park Drive for a total purchase consideration of $700 million. The sum comprises the estimated consideration of $471 million for 9 Tai Seng Drive, a Tier III colocation data centre, and $245 million for 5 Science Park Drive, a premium business space property. The acquisitions are expected to cost CLAR a total of $724.6 million including fees.
According to CLAR, the proposed acquisitions will deepen the REIT’s exposure to the technology sector in Singapore. 9 Tai Seng Drive will be acquired from CapitaLand Data Centre Trust and Science Park Property Trust, jointly owned by CapitaLand Development and CLAR.
“The acquisitions of 9 Tai Seng Drive and 5 Science Park Drive further anchor CLAR in Singapore, which stands as the cornerstone of CLAR’s multi-asset portfolio in matured, developed markets,” says William Tay, executive director and CEO of the manager.
Both properties will also increase the value of CLAR’s Singapore portfolio by 6.6% to around $11.7 billion. CLAR’s Singapore portfolio will also account for 67% of its total assets under management (AUM) of $17.6 billion upon the completion of the acquisitions.
Specifically, 9 Tai Seng Drive will expand CLAR’s data centre AUM by 32.8% to $1.9 billion, which is now 54% weighted in Singapore and 46% in the UK and Europe. Two of CLAR’s current data centre properties, Kim Chuan Telecommunications Complex and 38A Kim Chuan Road, are a five-minute drive away from 9 Tai Seng Drive. All three properties are located in Tai Seng Industrial Estate, which is home to cloud service providers, enterprises and other data centre players.
Meanwhile, 5 Science Park Drive will increase CLAR’s Singapore business space and life sciences AUM by 4.8% to around $5.7 billion. The property is part of the “Geneo” life sciences and innovation cluster in Singapore Science Park 1, which includes the redeveloped business space property 1 Science Park Drive, which was completed in March this year. CLAR owns a 34% stake in 1 Science Park Drive.
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9 Tai Seng Drive and 5 Science Park Drive will add to CLAR’s occupancy rate and provide stable income streams, as both properties are 100% leased. 9 Tai Seng Drive is fully committed to “well-established end users in the digital, e-commerce and financial services industries” with a weighted average lease expiry (WALE) of 4.4 years by revenue as at May 15.
5 Science Park Drive is fully occupied by Shopee, one of the business segments of NYSE-listed Sea.
“Both properties are expected to contribute positively to long-term returns with the potential for organic growth through rental uplifts and asset enhancement opportunities,” says Tay.
See also: CapitaLand Ascendas REIT raises $500 million from private placement at $2.47 per new unit
The properties have “attractively long” remaining land lease tenures within the industrial sector. 9 Tai Seng Drive has 30 years left on its land upon the renewal of the lease with JTC. JTC has granted the land a further lease term from June 1, 2025, to May 31, 2055. 5 Science Park Drive has a remaining land lease tenure of around 56 years. The former received the BCA-IMDA Green Mark Platinum certification while the latter is a BCA Green Mark Platinum certified building.
Attractive NPI yields
According to CLAR, both properties come with attractive net property income (NPI) yields. The first year NPI yield of 9 Tai Seng Drive, based on the colocation agreements that are currently in force and committed, stands at 7.2% pre-transaction costs and 7.1% post-transaction costs.
The first year NPI yield of 5 Science Park Drive is about 6.1% pre-transaction costs and 5.7% post-transaction costs. This excludes the deferred consideration of $30 million for the property, which is payable on Nov 13, 2026, when the existing lease term ends. There is also potential rental uplift as a result of rental reversion to market rent, says CLAR.
Accretive DPU
If the proposed acquisitions had been completed on Jan 1, 2024, CLAR’s distribution per unit (DPU) for the FY2024 ended Dec 31, 2024, on a pro forma basis would’ve improved by 0.206 cents or 1.36%.
The acquisitions of both properties are accretive to CLAR’s DPU as well, on a standalone basis.
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The manager expects 9 Tai Seng Drive to improve its DPU by 0.188 cents or 1.24% on a pro forma basis while 5 Science Park Drive is expected to increase CLAR’s DPU by 0.021 cents or 0.14%. Accounting for the effects of the estimated rental reversion and deferred consideration, the DPU accretion for 5 Science Park Drive would be 0.038 cents or 0.25%.
Growth potential
In its statement, CLAR says it sees organic growth potential with both properties. Existing colocation agreements at 9 Tai Seng Drive were contracted with end users between 2022 and 2025 with rates estimated to be about 30% below comparable market colocation rates.
“Due to the tight vacancy rate of about 2% currently and supply constraints for data centre space in Singapore, the market expectation of colocation retail rates is approximately US$300 to US$400 (or $390 to $520) per kW per month,” says CLAR. The space also has revenue potential in the mid- to long-term via the expansion of the existing IT capacity.
5 Science Park Drive will also yield growth with its existing rent some 15% below the current comparable rates in one-north and the Singapore Science Park 1 districts.
With a remaining term of 1.5 years on the lease, CLAR sees “opportunity for organic growth through potential rental uplift when the existing lease term ends in 2026 due to limited availability and supply of business space” in these districts.
9 Tai Seng Drive is valued at $465.5 million, while 5 Science Park Drive has a valuation of $263.5 million as at May 15, based on the assessments of independent valuers, Jones Lang LaSalle Property Consultants and Savills.
The acquisitions will be deemed as an interested person transaction (IPT) under the Singapore Exchange’s (SGX) listing rules.
Private placement
In its statement, CLAR says it intends to finance the total cost through a mix of proceeds from an equity fund raising and debt financing.
In a separate announcement, CLAR said it aims to raise $500 million through a private placement. The manager will issue new units to institutional, accredited and other investors at an issue price of between $2.465and $2.515 per new unit.
CLAR, Citigroup Global Markets, DBS Bank and United Overseas Bank(UOB) entered into a placement agreement on May 28. Citi and DBS were appointed as joint global co-ordinators, bookrunners and underwriters for the private placement while UOB was appointed as one of the joint bookrunners and underwriters.
Each of the joint bookrunners and underwriters have agreed to subscribe for the new units at the issue price to be determined.
The private placement is fully underwritten by the joint bookrunners and underwriters on the terms and subject to the conditions of the placement agreement.
The issue price range represents a discount of between 3.5% and 5.4% to the volume weighted average price (VWAP) of $2.6059 per unit for trades done on May 27.
About $275.5 million of the gross proceeds will partly finance the 9 Tai Seng Drive acquisition while $81.6 million will pay debt. About $5.8 million will go towards the estimated fees and expenses.
Units in CLAR last traded at $2.61 before its trading halt on the morning of May 28.
