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AA REIT acquires Woolworths HQ in DPU accretive deal funded by debt and perps

The Edge Singapore
The Edge Singapore 10/3/2021 09:08 PM GMT+08  • 3 min read
AA REIT acquires Woolworths HQ in DPU accretive deal funded by debt and perps
AA REIT acquires Woolworth headquarters which is accretive to DPU based on funding structure of debt + perpetual securities
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By all accounts, AIMS APAC REIT (AA REIT) appears to be making a transformational acquisition. At a price tag of A$463.2 million, or A$494 million including fees and other expenses, the Woolworths Headquarters outside of Sydney ticks all the boxes. The Property is wholly-leased to Woolworths for around 10 years, with up to 20 years extension options. The lease is accompanied by fixed rent step-ups at 2.75% pa. As a double-net leased property, the outgoings obligations are fully covered by the tenant.

Furthermore, Woolworths has spent A$50 million in capex for AEIs. For instance, the recent installation of new solar panels across the building roof areas provides the property with a sustainable and renewal energy source.

AA REIT’s assets under management will rise from $1.7 billion to $2.18 billion. Based on a funding combination of $207.5 million from perpetual securities raised in Aug at 5.375%, and debt of $272.4 million, the DPU accretion is likely to be 4.69%, taking pro forma DPU to 9.37 cents, from 8.95 cents recorded in FY2021 for the 12 months to March 31. “This is a Woolworths anchored asset and the cash flows are very secure. Ultimately, when we look at the combination of debt funding, which is just under 2%, it’s is a very attractive yield spread that we are achieving,” notes Russell Ng, incoming CEO of AA REIT’s manager.

See: DBS upgrades AIMS APAC REIT to 'buy' due to potential for further organic growth on portfolio

Net property income yield is around 5.2%, or 4.8% on a total cost basis. “When you include the escalations over the next 10 years we are easily getting a property with an average tenure NPI yield of 5.86%, or about 5.5% on total cost. So, so it [is] really providing us with strong income stability over the next 10 years,” Ng reiterates.

Ng describes the property as a high quality, corporate campus, comprising three buildings connected by a central atrium. “There are ground floor amenities, there are cafes. There's also a Woolworth supermarket on the ground floor. The campus as a whole comes with with all the other amenities such as sporting facilities, conference facilities, as well as a media room. It has been used as the corporate headquarters housing the different business units, as well as all the departments. They do also have one floor catering to their data centre operations,” Ng says.

According to him, the transaction has attracted quite a number of financial institutions with very competitive financing packages. In Aug this year, AA REIT raised $250 million in perpetual securities. “We do have sufficient funding to complete the transaction. However, we may consider an equity fund raising should additional acquisitions arise,” Ng adds.

In January this year, AA REIT announced the potential acquisition of 315 Alexandra Road for a total cost, including expenses of $106.6 million.

“At the moment we don't have full clarity as to whether that that transaction will take place. The property historically was an HDB site and so there were some particular conditions tied to it. We're not privy to to some of these discussions that are being worked out between the vendor and JTC. We are pushing for an outcome, but at this stage, unfortunately, we just don't know whether that transaction will take place or not. The point about the alternate funding will only happen if that transaction happens and also it depends on where the capital markets are,” Ng elaborates.

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