News Analysis: Back to acquiring well-located industrial properties with attractive fundamentals
Back to acquiring well-located industrial properties with attractive fundamentals
- Proposed acquisition of Philips APAC Centre for S$104.8m
- Acquisition likely to be debt-funded, generating a DPU accretion of c.029%
- In line with AREIT’s focus to grow its exposure in the digital economy and biomedical/lifesciences sectors
- Such opportunistic deals to drive further earnings growth albeit the small quantum (compared to AREIT’s AUM of S$17bn)
Source: Philips – Singapore
Proposed acquisition of Philips APAC Center for S$104.8m
- Centrally located at 622 Lorong 1 Toa Payoh
- Purchase consideration of S$104.8m
- c.6.0% discount to valuation of S$111.5m
- High occupancy of 95.7% with WALE of 4.5 years
- Initial NPI yield of 7.2% (6.8% post-cost)
- c.0.29% accretion to DPU
- Gearing to inch up slightly from 36.7% to c.37.1%
- Remaining land tenure of c.21 years
Philips’ APAC headquarters and innovation centre
- Sale and leaseback with Philips Electronics
- Philips occupies more than two-thirds of the property
- Total of 4 tenants in the property
- Six-storey building which comprises laboratory, R&D, warehouse and ancillary office space
- GFA of 37,975 sqm
Our thoughts
This acquisition came as a positive surprise for AREIT and is aligned with their strategic focus to grow its digital economy, and biomedical and lifesciences exposure. Although the S$104.8m acquisition is small compared to its AUM of c.S$17bn, the accretion to DPU is a relatively healthy c.0.29%. We believe the acquisition will be funded by debt, and AREIT’s gearing will inch up slightly from 36.7% to c.37.1%, leaving them with ample debt headroom.
The initial NPI yield of c.6.8% (post-costs) is also relatively attractive although the remaining land tenure of the property is only c.21 years. We believe the central location of the property will continue to appeal to tenants and the anchor tenant, Philips Electronics, has only recently redeveloped the property in 2016 to transform it into its regional headquarters. In line with AREIT’s guidance that it will continue to be on the lookout for smaller acquisitions as portfolio deals are increasingly expensive, its healthy gearing will support fully debt-funded acquisitions and generate DPU accretion.
We remain optimistic on AREIT as the c.S$466m of ongoing projects is continue to drive earnings growth in the coming two years, while acquisitions of well-located industrial properties like this will generate DPU accretion going forward. We will be maintaining our BUY recommendation with a TP of S$3.65.