While Tan highlights that the post-cost yield of 5.22% appears to be “fairly tight” compared to secondary market transactions of about 6%, the analyst is of the view that the under-rented properties versus market rents suggests opportunities for upside in the longer term.
Further, Tan believes the pound-denominated debt which the portfolio is expected to be funded by will act as a natural hedge against fluctuations of the pound versus SGD.
The analyst particularly likes the acquisition target for its long weighted average lease expiry (WALE) and strong tenant credit, which he says should serve as a good entry into the UK with minimal income and capital risk.
“The long WALE of 14.6 years is expected to increase [A-REIT’s] portfolio WALE to 4.4 years (from 4.2 years previously). The pro-forma impact of this acquisition is estimated to be c.1.2%,” notes Tan.
“The [UK logistics] properties are strategically located key distribution centres and have good accessibility to major motorways such as the M1 and M6 and should enjoy strong tenant stickiness,” he adds.
Units in A-REIT last traded at $2.72, or 17.4 times FY19F P/E, before the midday break.
