Analysts are positive on Ascendas REIT (AREIT) after the REIT announced the proposed acquisition of a cold storage facility at 1 Buroh Drive within the Jalan Buroh Food Zone for $191.9 million on Sept 14. This is the REIT’s maiden foray into cold storage facility investment in Singapore, and aligned with its strategy to grow its footprint in the logistics segment.
See: Ascendas REIT to acquire cold storage logistics facility in Singapore for $191.9 mil
The five storey ramp up logistics facility has a gross floor area (GFA) of 59,971 sqm, with a remaining land tenure of 21 years. At present, the facility is 100% occupied by five tenants.
The acquisition is expected to be completed in 4QFY2022, and will generate a distribution per unit (DPU) accretion of around 0.56%.
DBS Group Research team has kept its “buy” rating on the REIT with an unchanged target price of $3.65.
To the team, the acquisition is positive for AREIT as supply of modern cold storage facilities 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,” writes the team.
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The research team also note that the asset’s weighted average lease expiry (WALE) of 7.0 years is relatively attractive given that it is a multi-tenanted property, and they believe that it will continue to attract tenants in the food distribution and food processing sectors.
In addition, the property’s net property income (NPI) yield of around 6.9% appears attractive to the team especially as AREIT intends to fund the acquisition by debt, and although gearing is expected to inch up to around 38% by including the Philips Apac Centre acquisition for $104.8 million, the analysts believe that it is still within a very healthy level.
“With gearing already at an optimal level, Ascendas REIT may have to tap the market for its next major acquisition,” write the research team.
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On the other hand, CGS-CIMB Group Research analyst Lock Mun Yee has kept her “add” rating on the REIT with an increased target price of $3.21 from $3.20.
Lock sees that together with the REIT’s acquisition of Philips Apac Centre in August, this most recent acquisition could increase Ascendas REIT’s assets under management (AUM) to $16.9 billion, while expanding its exposure to the logistics property sector to around 26% of portfolio value. "This diversification into the cold storage sector will expand the REIT’s customer base, as food-related tenants accounted for 3.2% of Ascendas REIT’s rental income base as at June,” says the analyst.
The analyst tweaks her FY2022-FY2024 DPU estimates up by 0.13%-1.41% to factor in contributions from these two new properties. “Overall, we continue to like AREIT for its diversified and resilient portfolio and healthy balance sheet,” writes Lock.
Meanwhile, Citi Research analyst Brandon Lee has kept his “buy” rating on AREIT with an unchanged target price of $3.16.
To Lee, the acquisition signifies AREIT’s continued focus on growing its logistics portfolio and renewed focus on Singapore. That said, the acquisition’s “benign” DPU-accretion of 0.4%-0.6% is a “mitigating factor”. The low accretion rate also marks the challenges of the acquisition environment, Lee adds.
While the vendor was not revealed in AREIT’s acquisition announcement, Citi’s Lee observes that PGIM Real Estate had acquired the facility for $193.8 million in April 2017 from Warehouse Logistics Net Asia previously. Warehouse Logistics Net Asia is a diversified logistics company based in Singapore and leader in cold supply chain.
According to Lee’s estimates, the acquisition will see a debt cost of around 4%, based on a three-month Singapore overnight rate average (SORA) of 1.8%, with a 100% fixed rate and three-year swap rate of 3.0%.
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Further to his report, Lee notes that AREIT announced around $400 million of acquisitions year-to-date (ytd), compared to $2 billion and $1.5 billion in FY2021 and FY2020 respectively.
“Ascendas REIT has outperformed Singapore REITs (S-REITs) ytd, but remains one of our top two industrial S-REIT picks alongside Frasers Logistics and Commercial Trust (FLCT), due to its diversified industrial portfolio, decent FY2023 and FY2024 DPU growth of 6.7% and 5.1% respectively and largest domestic exposure among large-cap industrial S-REITs, which enables it to benefit from [strength of the Singapore dollar (SGD)] and mitigate continued forex volatility,” says the analyst.
RHB Group Research analyst Vijay Natarajan has kept a “buy” rating on AREIT with an unchanged target price of $3.60, where the REIT remains the analyst’s top pick of the sector.
“With these acquisitions, AREIT’s ytd acquisitions amount to $520 million, about 50% of management’s guidance of approximately $1 billion for the full year, which indicates that there may be more new assets to come in 4QFY2022,” shares Natarajan. Singapore will account for approximately 62% of assets by value, with 15% coming from the US, 14% from the UK and 9% from Australia.
Natarajan agrees with the DBS Group Research team that the REIT has a comfortable post-acquisition gearing of about 37%, providing around $1 billion in debt headroom.
The analyst has lifted his FY2022-FY2023 DPU estimates by approximately 1% to factor in the acquisitions.
As at 10.24am, units in Ascendas REIT are trading at 1 cent down or 0.35% lower at $2.85 at a FY2022 P/B ratio of 1.17x and dividend yield of 5.70% according to CGS-CIMB’s estimates.
