Ascendas REIT tests Chinese waters with S$117.6 mln investment

A-REIT purchased a 7.9 hectare property in an export and processing zone in Shanghai.

The business space property is located in Jinqiao Export and Processing Zone (JEPZ), a well established and connected development zone in Pudong New District, Shanghai.

Construction is expected to be finished by the end of 2012.

DBS Bank views the acquisition as a huge risk on A-REIT’s part due to the current lack of pre-commitments for the property. 

“It seems to us that A-REIT has taken a leap of faith in acquiring the development project without any pre- commitments to-date. This, in our view, deviates from management’s more conservative approach towards acquisitions where the property usually comes fully/partially leased,” the bank said.

DBS said that while the purchase has minimal impact on profit for A-REIT, it provides the trust with “the opportunity to showcase its execution ability.” 

The bank believes A-REIT will use its existing tenant network and leverage on its parent Ascendas Group’s established presence in China to fill the space in the span of two years. 

Also working in A-REIT’s favor is the RMB67mln rental guarantee, (or a gross rental yield of 11%), from the vendor.