Ascendas REIT (A-REIT) has proposed to acquire a portfolio of 26 logistics properties in the UK for an agreed portfolio value of GBP257.5m (S$459.2m). Including the acquisition fee and other transaction costs, the total acquisition cost is estimated to be GBP260.1m (S$463.8m). Funding will partially come from the recent private placement exercise carried out by A-REIT recently.

25 of these properties are on freehold land and the remaining one sits on a 965-year leasehold land. The portfolio has a long WALE of 9.1 years structured on triple-net lease and occupancy of 100% if we include rental guarantees (physical occupancy is 92.4%). Key tenants include Aston Martin Lagonda, Amethyst Group, Royal Mail and Sainsbury.

This acquisition supplements A-REIT’s recent acquisition of a portfolio of 12 logistics properties in the UK on 16 Aug this year. The initial NPI yield works out to 5.54% (5.39% post-cost yield) for this proposed acquisition, as compared to 5.32% for the first UK portfolio purchase.

The enlarged footprint in the UK (AUM of ~S$847m after this acquisition) will likely provide economies of scale and diversification for A-REIT, while on the flipside, we believe there remains risks from the ongoing uncertainties over Brexit.

For now, we have a HOLD rating and S$2.71 fair value on AREIT.

Source: OCBC Research - 1 Oct 2018