Ascendas Real Estate Investment Trust (A-Reit) has entered the Australian market with a bang, buying 26 properties worth A$1 billion (S$1 billion).
In one fell swoop, the purchase establishes A-Reit as the eighth-largest industrial landlord Down Under, with over 630,000 sq m of prime institutional-grade logistics space in Sydney, Melbourne, Perth and Brisbane.
The purchase, from the real estate arm of investment firm GIC and Frasers Property Australia, will also enhance A-Reit's customer base, noted Mr Tan Ser Ping, the chief executive of A-Reit's manager, Ascendas Funds Management.
With an occupancy rate of 94.4 per cent, the portfolio's tenants include Australian household names such as Wesfarmers, Pacific Brands and Nestle, whose businesses are underpinned by the country's growing population and rising domestic consumption, he said.
There are also several leasing enquiries for the entire space at one of the properties, 62 Stradbroke Street in Brisbane, which, when fully leased out, is expected to raise the occupancy rate to 98.3 per cent.
The acquisition is expected to generate a net property income yield of about 6 per cent in the first year, after accounting for transaction costs.
At a briefing yesterday, one analyst asked A-Reit's managers if they felt the price they were paying was rather "rich". Mr Tan said the quality of the assets, the stellar tenant profile and a relatively long committed weighted average lease expiry of 6.1 years justify the price tag.
He said: "I think the price and yield are a reflection of the quality of the assets as well as the tenant profile and mix."
The trust managers could have waited for a sweeter deal, Mr Tan said, but the opportunity may have passed them by completely. "If you understand the Australian market, an opportunity of this size and scale and quality - I don't think it comes along very often."
The purchase will also diversify A-Reit's portfolio geographically, increasing the contribution of overseas investment, by asset value, from 4 per cent to 14 per cent. This is in line with the trust's target for overseas markets to account for 20 to 30 per cent of its portfolio, Mr Tan said.
The Australian economy is in the midst of a slowdown, dragged down by a sharp fall in Chinese demand for commodities, a major industry and growth driver in the country.
Official figures showed the economy grew by just 0.2 per cent in the June quarter, the weakest figure in more than two years. However, there is underlying strength in the Australian market, driven by structural changes, Mr Tan said.
"The headline on the Australian economy is that it's slowing, particularly from the commodities and mining slowdown. But if you read Australian media reports, you'd also see that they are shifting their emphasis... towards services, technology and domestic consumption."
The acquisition is expected to be completed in the final quarter of this year.
Ascendas Funds Management plans to fund the purchase with Australian loans of about A$600 million and by issuing perpetual securities through A-Reit.
Depending on the cost of these perpetual securities, the acquisition is expected to be 3 to 3.5 per cent accretive to A-Reit's distribution per unit.