Ascendas REIT (A-REIT) announced last evening its proposal to acquire a portfolio of 12 logistics properties located in the UK from two third-party vendors. Once completed (expected in 3Q18), this would mark A-REIT’s maiden entry into the region.

The agreed portfolio value is GBP207.3m (~S$373.2m), which translates into an initial NPI yield of 5.3% (5.2% post-cost yield). The benefits of the proposed acquisition include i) a long portfolio WALE of 14.6 years, ii) predominantly freehold land (10 freehold and 2 on 999-year leases), iii) tight supply of logistics properties in the UK.

Overall, we are neutral on the transaction. Although the acquisition would provide A-REIT with a diversification of income streams, there are still uncertainties over the Brexit process. Funding is expected to come from GBP-denominated loans to provide a natural hedge, while A-REIT may also hedge the expected net income cash flow.

On a pro forma basis, this transaction is expected to boost AREIT’s FY18 DPU by 1.2%, while its aggregate leverage would increase from 34.4% to 36.7%. We currently have a HOLD rating and S$2.71 fair value on A-REIT.

There will be an analyst briefing held later. Its 1QFY19 results will be announced on 30 Aug after market close.

Source: OCBC Research - 27 Jul 2018