News Analysis: Growing logistics footprint with a cold storage facility in Singapore
- Proposed acquisition of a cold storage facility at 1 Buroh Drive for S$191.9m
- Acquisition will be debt-funded, generating a DPU accretion of c.0.56%
- Aligned with AREIT’s strategy to grow its footprint in the logistics segment
- Property expected to benefit from strong demand given its location among food distributors and food processing businesses, as well as limited supply of cold storage facilities in Singapore
Following the announcement of the acquisition of the Philips APAC Centre last month, Ascendas REIT will be embarking on another acquisition in Singapore. The proposed acquisitions is AREIT’s first cold storage facility investment in Singapore, and is expected to benefit from future rental growth given the limited supply of cold storage facilities and the property’s location within the Jalan Buroh Food Zone.
- Located in 1 Buroh Lane, within the Jalan Buroh Food Zone
- Five storey ramp up logistics facility with a GFA of 59,971 sqm
- Purchase consideration of S$191.9m
- A c.1.6% discount to valuation
- 100% occupied by five tenants
- WALE of 7.0 years
- Built in rental escalations of 2% – 3% every three years
- NPI yield of 6.9% (7.0% pre-transaction costs)
- DPU accretion of c.0.56%
- Fully debt funded
- Gearing expected to inch up to c.38% (including acquisition of Philips APAC Centre)
- Remaining land tenure of 21 years
Our thoughts
In our view, the acquisition is a positive for AREIT as supply of modern cold storage facility in Singapore is limited, and demand is expected to remain strong. In addition to the built in rental escalations of 2% – 3% every three years, the property which is located in the Jalan Buroh Food Zone and is in close proximity to Jurong Port and Tuas Mega Port could benefit from future rental growth. The asset’s WALE of 7.0 years is relatively attractive given that it is a multi-tenanted property, and we believe that it will continue to attract tenants in the food distribution and food processing sectors.
The NPI yield of c.6.9% appears attractive especially as AREIT intends to fund the acquisition by debt, and although gearing is expected to inch up to c.38% (including the Philips APAC Centre acquisition), we believe that it is still within a very healthy level. With gearing already at an optimal level, AREIT may have to tap the market for its next major acquisition. The acquisition is expected to be completed in 4Q22, and will generate a DPU accretion of c.0.56%.
This acquisition further cements AREIT’s strategy to grow its logistics portfolio, and demand for cold storage space in Singapore is expected to remain strong due to the limited supply of such modern facilities. We will be maintaining our BUY recommendation with a TP of S$3.65.