Here's how Ascott Residence Trust benefits from Infini Garden acquisition

Increases Japan presence and income visibility.

Ascott Residence Trust (ART) recently struck a sales and purchase agreement to acquire the rental housing property, Infini Garden, in Japan and it's poised to increase contribution from the country to 14% of total assets, according to DBS.

This has the beneficial effect of increasing master lease contribution to portfolio to 34% from 32%, which DBS said further improves income visibility.

Here's more from DBS:

Delivers acquisition in Japan; implied yield of 6.6% is accretive. Ascott Residence Trust (ART) recently entered into a sales and purchase agreement to acquire a rental housing property named Infini Garden in Fukouka for JPY6.3 billion (c.S$78.4m) from The Ascott Limited and ArcResidential Japan Investments Limited. The purchase price implies an attractive EBITDA yield of 6.6%. Gearing post acquisition is estimated to increase to c. 36%.

Deepens its presence in Japan; improved master lease contribution improves earnings visibility. Infini Garden will be ART’s second property in Fukouka and will increase its contribution from Japan to 14% (vs 12% currently) of total assets. The property will be master-leased to a third party over the next c. 4.3 years, increasing master lease contribution to portfolio to 34% from 32%, further improving income visibility.

Second deal in 2 months; acquisition pace meets our estimates. The acquisition of Infini Garden together with the acquisition of a Dalian property earlier, brings total acquisition YTD to S$197m and at a blended yield of c.5.9%. This forms 56% of our projection of c.S$350m @ 6% yield by 1H14. We believe that more acquisitions are in the pipeline, given the Manager’s long term target gearing of c. 40%. As such, we maintain our estimates.

Maintain BUY, S$1.33 TP. We believe yields of close to 7.3%-7.5% are stable and attractive and that the manager will continue to deliver on the acquisition front, hence growing its portfolio.

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