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AIMS APAC REIT ($1.44, up 0.01) had on 30 September 2021 entered into a contract for sale agreement to acquire Woolworths Headquarters, located in New South Wales, Australia for a purchase consideration of A$463.25 million (approximately S$454.0 million) from Inmark Asset Management Pty Ltd. The Property, fully leased to Woolworths Group Limited (Woolworths), will be acquired at an initial Net Property Income (NPI) yield of 5.17%.

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The Manager’s Chairman, Mr George Wang, commented, “This Proposed Acquisition will strengthen AA REIT’s foothold in Sydney’s resilient business park market. The asset sits on a rare nine-hectare freehold land, within the Norwest Business Park, with good connectivity and direct access to the Sydney CBD. The precinct is also home to a thriving community of established domes􀆟 c and multinational corporations such as Australia Post, Resmed, IBM and Optus and data centres for the Reserve Bank of Australia and Commonwealth Bank of Australia. Furthermore, this acquisition will be DPU accretive and will provide AA REIT with long-term income stability, through the long lease term and fixed annual escalation”.

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The Property has undergone significant capital investment over the years with progressive upgrades to the office fi t-outs and amenities, ground floor reception foyer, including the construction of a new multi-storey carpark with a capacity of over 1,000 parking bays and new solar panels across the building rooftop. This Proposed Acquisition is also significant as the Norwest sub-market will provide an entry into another attractive major business park precinct in Australia, a􀅌 er AA REIT’s acquisition of Optus Centre in Macquarie Park, Sydney, in 2014. Apart from being able to benefit from annual rental escalations and long-term capital appreciation, there is immense potential to unlock value as this Property was designed to cater for future site expansion for additional buildings. Such potential development will increase the le􀆩 able area and correspondingly provide additional income stream and stability to AA REIT’s por􀆞 olio.

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Mr Wang further added, “This is a transformational acquisition for AA  REIT, representing the largest asset in the REIT’s high-quality portfolio, and wholly-leased to one of Australia’s largest companies listed on Australian Securities Exchange Ltd (ASX). This acquisition is reminiscent of the Optus Headquarters Campus acquisition in 2014. At that 􀆟 me, the property was acquired for A$377.0 million. The valuation of Optus Headquarters Campus has now grown to A$660.0 million (75.1% uplift, as at 31 March 2021), following our recent 10 year lease extension, which has provided a strong return to AA REIT’s unitholders. The Optus campus freehold site is approximately 7.6 hectares with 84,194 sqm of Net Le􀆩 able Area, of which AA REIT’s share is 49%. This acquisition is in line with AA REIT’s investment strategy to buy quality assets that generate attractive long-term total returns for unitholders”.

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The Property is a freehold, A-Grade corporate campus, 100% leased to Woolworths, one of the Top 10 ASX listed companies by market capitalisation, and the largest supermarket retailer in Australia. The balance lease term of 10 years is subject to built-in rental escalation of 2.75% per annum. Post-Acquisition, Woolworths will become the largest tenant in AA REIT’s portfolio. The Property acquisition will significantly enlarge our portfolio value by over 26.6% to S$2.183 billion as well as raise the contribution of Australian freehold properties to AA REIT’s por􀆞 olio, from 21.8% to 38.4%. In addition, the fully occupied Property and its WALE of 10 years will provide additional resilience to the portfolio, lifting the overall occupancy rate to 95.9% and WALE from 3.98 years to 4.92 years on a pro forma historical basis for FY2021.

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The acquisition is expected to raise DPU from 8.95 cents to 9.37 cents, giving a div yield of 6.5%. Gearing post acquisition is expected to be 38.6%, still comfortably below the regulatory limit of 50.0%. Trading at about 1x book, there is about 15% potential upside to consensus target price of $1.65. Besides helping to diversify the REIT’s customer and geographical exposure, WALE will also increase.