SGX-listed AIMS APAC REIT (AA REIT) has agreed to buy a four-storey warehouse in western Singapore’s Jurong district for S$129.6 million ($94.4 million), notching the city’s biggest industrial deal thus far in 2020 as investors compete for logistics investment opportunities.
AA REIT is acquiring the ramp-up logistics facility at 7 Bulim Street in the heart of the industrial district from private developer Titan Wenya through a put and call option agreement, with the project fully leased to a unit of Japanese freight forwarding giant Kintetsu World Express.
The listed trust is acquiring the 68,190 square metre (733,991 square foot) facility for the equivalent of S$176.57 per square foot, with the REIT’s manager announcing the deal in a statement to the Singapore exchange earlier today.
10-Year Master Lease Provides 7% Yield
“The proposed acquisition further strengthens AA REIT’s portfolio of industrial and logistics assets in Singapore, and is in line with our strategy to build a high-quality, diversified portfolio of assets that create long-term value for our unitholders,” said Koh Wee Lih, CEO of AA REIT’s manager.
Including transaction fees, the listed trust expects to spend S$135.5 million acquiring the property, which occupies a 34,095 square metre site.
Koh indicated, however, that the investment vehicle could expect the asset purchase to immediately boost its income. “The yield accretive acquisition will enhance the income of AA REIT’s portfolio amidst the current challenging market conditions, and the strong lease covenant and master tenant provides stability.”
The trust’s manager says it expects the acquisition to generate a first year net property income of S$9.2 million from its lease to the Japanese freight forwarder, providing an initial yield of 7.07 percent. Kintetsu signed a 10-year master tenant lease on the warehouse from January 2014, and has an option to renew for another five years.
The REIT’s sponsor AIMS, a Sydney-based fund manager with A$2 billion ($1.4 billion) of assets under management, has been growing its presence in Singapore in the past decade since acquiring fund manager MacArthur Cook, which had been the original sponsor of AA REIT, in 2009. Through AA REIT, formerly known as MacArthur Trust Industrial REIT, it now manages 26 properties across the Southeast Asian financial hub including this most recent acquisition.
Infrastructure Can Be Sexy
With consumers holed up at home after the Singapore government imposed social distancing measures to curb the further spread of COVID-19 earlier this year, growing demand for e-commerce helped keep rents for industrial properties stable across the city in the second quarter, even as office leasing rates fell, according to JLL.
In Jurong, where AA REIT has made its purchase, the property will benefit from the government’s continued infrastructure development, said Rimon Ambarchi, head of industrial and logistics in Singapore and Southeast Asia at CBRE, which brokered the transaction.
“We are experiencing stronger demand for industrial and logistics assets than we did pre-COVID and the investor base has become much more diverse,” Ambarchi said. “The 7 Bulim Street sales process that we ran is an example of this, where we experienced fierce bidding from a multitude of investors.”
Industrial properties in Jurong have been popular among institutional investors given their proximity to the 600-hectare Jurong Innovation District, which has already attracted German engineering giants Bosch Rexroth and Siemens as tenants and the proposed Tuas Port, which will be the world’s largest fully automated cargo terminal when fully operational by 2040.
In Jurong, AA REIT’s new ramp-up shed will fit into a government-backed integrated manufacturing hub that will feature an underground logistics network, autonomous vehicles and other AI-driven technology when it is completed in 2022, to plans announced earlier.
Crowding into Sheds
With the acquisition, AA REIT joins other institutional investors tapping the stable rental income offered by Singapore’s industrial properties, which have proved to be among the city’s most resilient assets after real estate investment in the country tumbled more than two-thirds in the first six months of the year due to the economic fallout from the COVID-19 pandemic.
As the pandemic emptied hotels, offices and shopping malls in May, a S$1.2 billion property fund managed by Logos Group acquired a redevelopment site in Jurong from SGX-listed construction company CSC Holdings. The Australian developer and fund manager, together with a partner plans to invest S$108 million to demolish the existing building on the site and develop a six-storey ramp-up warehouse.
In the same month that Logos signed its Jurong deal, Deutsche Bank affiliate DWS acquired a 403,000 square foot warehouse in the district from an undisclosed private fund for a price said to be between S$75 million and S$100 million.
Within Asia Pacific, Singapore has become a preferred destination for institutional investors seeking to deploy some $20 billion of capital in logistics properties this year, according to JLL.
“Singapore is a jewel in terms of stability, it’s a safe haven for capital,” said Stuart Ross, executive director and head of industrial properties in Southeast Asia at JLL. “Because of the disruption that COVID-19 brought, there’s an opportunity for international investors to get into high quality industrial assets in Singapore. There are companies looking to liquidate assets to get access to cash.”