News Analysis: Foray into the heart of America

  • AREIT’s first foray into the US logistics market with the acquisition of a portfolio of 11 properties in Kansas City
  • Acquisition will be funded by redeployment of proceeds from recent divestments in Australia and will be DPU accretive
  • AREIT may look to grow its presence in new economy assets in the US (now with logistics ) coupled with and the potential redevelopment in Singapore’s Science Park are key re-rating catalysts.
  • Maintain BUY with a TP of S$4.00

First foray into the US logistics market

  • AREIT’s first entry into the US logistics market with the acquisition of 11 logistics properties in Kansas City
  • Kansas City is has a well developed transportation infrastructure and the economy is supported by key industries such as logistics and distribution, e-commerce, manufacturing, animal health, technology and financial sectors
  • Strong demand for logistics space in Kansas City with market vacancy of only 4.8%, and asking rents growing by 3.8% per annum in the past 5 years 
  • Acquisition consideration of S$207.8m
  • All 11 properties are Freehold with a total NLA of 200,908 sqm
  • Average occupancy of 92.6% and average WALE of 2.8 years
    • 10 of the 11 properties have full occupancy
    • Vacancy at 1 property due to non-renewal of tenant
  • Majority of leases are on triple-net basis, and leases have built-in annual rental escalations of between 2.5% to 3.0%
  • 27 tenants from the 3PL, wholesale distribution, manufacturing and healthcare sectors
  • NPI yield of 5.1% and 5.0% (post-costs)

Acquisition will be DPU accretive

  • Acquisition will be funded by proceeds from divestment of 3 properties in Australia and debt
    • Total divestment proceeds of c.S$128.7m
    • Remaining c.S$84m will be funded by debt
  • AREIT’s gearing will be maintained at c.37.4%
  • Acquisition will be c.0.7% accretive to DPU
  • Expected to be completed within 4Q21

Properties are located in established submarkets in Kansas City, and enjoy good connectivity to interstate highways and the international airport

Source: AREIT

Our thoughts

We remain positive on AREIT and are excited on their first foray into the US logistics market. While the sector is new, the REIT have been investing in the new economy asset space for a while now. Given that majority of the acquisition will be funded by proceeds from divestment in Australia, gearing will be maintained at c.37.4% while at the same time, optimising its return on its capital deployed. 

The overall metrics for this portfolio of 11 properties are very healthy with a high occupancy rate of c.93% with a high built-in annual rental escalations of 2.5%-3.0%. 10 of the 11 properties have full occupancies, and the only vacancy is at the Quebec Street property that has an occupancy rate of 49%. We understand that this was due to a non-renewal by a tenant, but we are confident that AREIT will work on immediately backfilling the space once the acquisition is completed. With an initial NPI yield of 5.1% (or 5.0% post-costs), we are encouraged by the expected 0.7% accretion to DPU.

This marks another milestone for AREIT with their first foray into the US logistics market, and we believe that they will look to continue growing the scale of their US logistics portfolio. With the acquisition expected to complete within this quarter, it helps to replace the income void from the divestments in Australia. Looking ahead, we continue to be on the lookout for AREIT’s redevelopment plans for the TUV SUD PSB Building at Science Park in Singapore.

We will be maintaining our BUY recommendation with a TP of S$4.00.