AIMS AMP CAP INDUSTRIAL REIT
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AIMS AMP (AAREIT SP) - Redevelopment Growth Crystalised
DPU support, compelling valuation; Reiterate BUY
- We have adjusted estimates for AAREIT following 4Q/FY18 results even though FY18 DPU of SGD10.20cts was in line with both our and street estimates.
- Negative reversions in light of industrial oversupply are likely to continue in the near term. DPUs should however see support from its fourth completed redevelopment, and its first greenfield build-to-suit (BTS).
- Fundamentals remain positive, with potential upside from its newly announced redevelopment project. Our DDM-based Target Price of SGD1.50 (WACC: 8.0%, LTG: 1.5%) suggests 16% total return including the implied 7.6% dividend yield.
- Catalysts are new redevelopment-led DPU growth.
Recovery slow; redevelopment projects delivering
- AAREIT reported 4Q18 DPU of SGD2.63cts, down 5.4% y-o-y on an expanded unit base from its Dec 2017 placement. While its portfolio occupancy improved q-o-q to 90.5% from 88.4%, the rental reversion of - 24.0% (vg. -15.0% in 3Q18) suggests industrial oversupply headwinds could persist into 2H 2018.
- In FY18, AAREIT divested its smallest asset - 10 Soon Lee Road - at 28% above valuation, and secured temporary occupation permits for two projects. Its fourth redevelopment property at 8 Tuas Ave 20 is 83.2% occupied. Its first greenfield BTS development at 51 Marsiling Road, pre-committed to precision engineering specialist Beyonics on a 10-year master lease with annual rental escalations, should contribute from 1Q19.
- Management announced plans to redevelop its property at 3 Tuas Ave 2 into a modern ramp-up facility. This should increase GFA by 52% once completed. We will factor this into our estimates once details are available.
Sound balance sheet supports growth options
- Aggregate leverage stood at 33.5% as at end-Mar 2018 down from 37.3% in 2Q18, due to the SGD55m equity increase.
- Post-4Q18, AAREIT has secured about SGD240m in committed facilities to lengthen its debt maturity from 1.8 years to 3.3 years. We see further asset rejuvenation opportunities, with about 7% or 0.5m sf of its portfolio GFA under- utilised. We estimate redevelopment projects could boost DPU by 4-5%.
Swing Factors
Upside
- Earlier-than-expected pick-up in leasing demand for light industrial and logistics space driving improvement in occupancy.
- Better-than-anticipated rental reversions.
- Accretive acquisitions or redevelopment projects.
Downside
- Prolonged slowdown in economic activity could reduce demand for light industrial and logistics space, resulting in lower occupancy and rental rates.
- Termination of long-term leases contributing to weaker portfolio tenant retention rate.
- AUD/SGD volatility which could impede hedging efforts and affect DPU.
- Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.
Chua Su Tye
Maybank Kim Eng
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http://www.maybank-ke.com.sg/
2018-04-26
SGX Stock
Analyst Report
1.500
Same
1.500