AIMS AMP Capital Industrial REIT - DBS Research 2016-05-24: Rolling on the waves

AIMS AMP Capital Industrial REIT - DBS Research 2016-05-24: Rolling on the waves .SI 

AIMS AMP Capital Industrial REIT - Rolling on the waves

  • Stable DPU outlook due to earnings visibility.
  • Organic growth potential from redevelopment.
  • Total return exceeds 18% with 8% yield.

The Business

A diversified portfolio of industrial assets. 

  • AAREIT invests in a diversified portfolio of 25 industrial estates located in Singapore and a JV in Australia (as at 31/03/2016). The properties types are diversified into warehousing and logistics, business parks, light industries, high tech and manufacturing activities, which support tenants in a myriad of different industries.

Ability to sustain DPU amidst headwinds. 

  • We expect AAREIT to weather through the current industrial downcycle, and to deliver stable returns over FY17F-18F. 
  • While we expect certain master leases will not be rolled over in the coming years as we have projected the contribution from master-leases to decline from 50% to 35% by the end of FY18), underlying occupancies are expected to be fairly high, implying that the downside to earnings is likely to be marginal.

31% of potential untapped GFA. 

  • We see untapped value from its portfolio, coming from c.760,000 sqft or 31% of additional GFA to be deployed in the existing portfolio by redeveloping the under-utilised properties, providing inorganic growth opportunities. 
  • Planned optimization of these spaces could mean upside to distributions, NAVs when executed upon.

The Stock

Attractive 8% yield. 

  • The REIT has a DCF-based valuation (7.2% WACC and 1% terminal growth rate) of S$1.52, i.e. 1.0x P/BV, and an 8% forward yield based on the latest traded price of S$1.38, indicating a potential total return of 18.4%. 
  • Currently trading at 0.93x P/BV, the downward pressure in price is limited.

Vacancy a key downside risk. 

  • Worse-than-expected occupancy rate could deteriorate DPU and eventually the unit price.

Singapore Research Team DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-05-24
DBS Vickers SGX Stock Analyst Report NOT RATED Maintain NOTED RATED 1.38 Same 1.38