EUR 850.00 For Business Accounts Only

Morningstar | AREIT Expands in the U.K. by Acquiring Second Logistics Properties Portfolio; FVE Intact at SGD 2.55

Following Ascendas Real Estate Investment Trust's, or AREIT's, first foray into the U.K., which was completed in August, it has announced that it will acquire a second portfolio comprising 26 logistics properties in the U.K. for GBP 260.1 million, or approximately SGD 463.8 million. The properties have an average occupancy rate of 92.4% spread over 19 tenants, including Aston Martin Lagonda, Amethyst Group, Eddie Stobart, Royal Mail Group (a major postal service group), and Sainsbury’s (a major supermarket retailer). If we include the rental top-up provided by the vendors for four of the properties (of which two are still undergoing construction), the occupancy rate of the portfolio would be at 100%. One of the properties that is under construction has already been pre-leased. The portfolio has a long weighted average lease expiry of 9.1 years, which is less than the 14.6 years of the first portfolio but still longer than the 4.2 years at AREIT’s existing portfolio, and is on freehold land (including one of the 26 properties, which is on 965-year leasehold land). The expected net property income yield for this portfolio is at 5.54%, which is slightly higher than the net property income yield for the first portfolio of 5.32%. We have adjusted our forecasts accordingly, and we retain our fair value estimate of SGD 2.55, along with our no-moat and stable moat trend ratings. We think AREIT is currently slightly overvalued with an estimated dividend yield of 6.4% for fiscal 2019.

AREIT intends to fund this acquisition with a combination of proceeds from the private placement that was completed in September and British-pound-denominated debt via a 52.5:47.5 ratio. When AREIT previously undertook the private placement of 178 million units at SGD 2.54 per unit, raising around SGD 452.1 million in September, it already specified that around SGD 250 million of the proceeds would be used to fund the acquisition of a second U.K. logistics portfolio. For the remainder, around SGD 109 million of the proceeds could be used to partly fund the development of a build-to-suit facility, while SGD 89 million could be used for debt repayment and future acquisitions.

We view this acquisition positively, as: (1) it is accretive in terms of distribution per unit to unitholders; (2) it provides the trust with an opportunity to expand its U.K. portfolio and acquires a portfolio of freehold assets; (3) it has a long weighted average lease expiry; and (4) it could benefit from the growing e-commerce trend in the U.K. which could be less affected by Brexit. This acquisition is in line with AREIT’s strategy to diversify its portfolio, as management previously stated during its first foray into the U.K. market that there could be more acquisitions to come in the U.K. or the larger European market.