AIMS AMP - Maybank Kim Eng 2016-04-20: 759k sf more to unlock

AIMS AMP - Maybank Kim Eng 2016-04-20: 759k sf more to unlock AIMS AMP CAP INDUSTRIAL REIT O5RU.SI 

AIMS AMP (AAREIT SP) 759k sf more to unlock 

Redevelopment of 8 & 10 Tuas 

  • AAREIT announced the redevelopment of 8 & 10 Tuas. 
  • Factoring in the downtime and new property post redevelopment, as well as expected refinancing savings in Aug 2016, FY3/17-18 DPU is revised from 11.1/11.5 to 11.0/11.6 Scts. 
  • Applying our unchanged yield peg of 7.5% to a blended FY3/16-18 DPU achieves a marginally higher TP of SGD1.49 (+1.3%). 
  • Maintain BUY. 
  • AAREIT is currently trading at 8.2% yield vs our 7.5% yield peg, which is at -1SD of AAREIT’s trading range. 
  • The Industrial SREIT sector is trading at -1SD of its trading range and there is no reason for AAREIT to trade at a discount to -1SD, given its competent leasing and active unlocking of latent potential. 

Asset enhancement: 8.7% yield on cost 

  • AAREIT recently announced the redevelopment of 8 & 10 Tuas, which had previously been damaged by fire. 
  • As the master lease expires mid-2016, opportunity was taken to enlarge the gross floor area from 117k sf to 159k sf, and at the same time reposition the property into a ramp-up with high ceilings and cargo lift access as well. The new property would be suitable for both warehousing and production. 
  • It is also superbly located near the new Tuas mega-port, and is a few minutes walk from Tuas West MRT. 
  • Estimated cash outlay after insurance claims for loss of income and reinstatement is likely to be SGD17-20m, which works out to be upwards of 8.7% yield on cost. 
  • Gearing will remain low, below 34%. The property will cease operations mid-2016 and is expected to be ready 2H17. 
  • AAREIT still has 759k sf of untapped GFA. 

Refinancing opportunity 

  • 20% of debt, or SGD100m of medium term notes at 4.9% is up for renewal this August. 
  • In April this year, Soilbuild REIT which is of a smaller size (SGD694m market cap), issued a 5yr duration MTN at 3.6%. We expect AAREIT to refinance in that region. This could result in interest savings of over SGD1m.

Joshua Tan Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-20
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.49 Up 1.47