Background: AIMS AMP Industrial REIT (AAREIT) was
originally listed as Macarthur Cook Industrial REIT in
2007. However, the trust ran into liquidity problems
during the GFC, as it had a debt of SGD202.3m due on
17 Apr 2009, along with an unfunded SGD90.2m
contractual obligation to acquire 1A International
Business Park. Meanwhile, the trust’s sponsor,
Macarthur Cook Limited, was acquired by the AIMS
Financial Group in Jul 2009, which resulted in the latter
being the new sponsor of the trust. AAREIT’s principal
investment objective is owning and investing in a
diversified portfolio of income-producing industrial real
estate assets in Singapore and Asia including
warehouse and logistics centres, manufacturing facilities,
business parks, and hi-tech spaces.
Why are we highlighting this stock? We recently met up with Management to find out more about the trust, in view that the counter has risen by 29.6% YTD and offer an attractive DPU yield of ~9% (one of the highest amongst Industrial REITs). It presently has 25 properties valued at SGD914.5m as of 31 Mar 2012. AAREIT is also redeveloping 20 Gul Way that will quadruple its annual rental income and triple its gross floor area on that property when fully completed in Dec 2013.
Why are we highlighting this stock? We recently met up with Management to find out more about the trust, in view that the counter has risen by 29.6% YTD and offer an attractive DPU yield of ~9% (one of the highest amongst Industrial REITs). It presently has 25 properties valued at SGD914.5m as of 31 Mar 2012. AAREIT is also redeveloping 20 Gul Way that will quadruple its annual rental income and triple its gross floor area on that property when fully completed in Dec 2013.
Attractive DPU Yield. DPU grew by 5.3% in FY12 to
10.45 SG cts. Upon the completion of 20 Gul Way,
managementwouldexpectincrementalDPUtobe1.465
SG-cts and AAREIT would become the second-largest
ramp-up warehouse landlord after CACHE. According to
street estimates, FY13 DPU yield is forecasted at 9.2%.
(DPU of 11.3 SG cts). AAREIT’s aggregate leverage
remains healthy at 30% as of 31 Mar 2012. We note that
AAREIT’s gearing may escalate to ~35% after the
redevelopment of 20 Gul Way (SGD150m debt-financed).
• All Singapore-based assets. AAREIT enjoys high portfolio occupancy of 99.2% with an average security deposit of about 8.1 months per property. It has divested several low-yields properties such as 23 Changi South, Asahi Ohmiya Warehouse, and 31 Admirality Road in 2011–2012. It also has six properties, apart from 20 Gul Way, whose plot ratio utilisation is below 60%, thus making them potential candidates for redevelopment. AAREIT is presently in a sweet spot with its exposure in the logistics and multi-factory space (price index rose by 31.6% and 25.4% YoY in 1Q12, respectively).
• Risk. Downside risks, in our view, include a relatively short lease expiry of 2.62 years. Two large
assets, 27 Penjuru Lane and 8&10 Pandan Crescent, are expiring in FY13. However, overall lease expiry has been reduced from 29.9% in end-Mar to 18% in end-Jun (incl. subleases), following lease extensions. There are also varying degrees of: (a) concentration risks as the top ten tenants constitute 70.5% of 4QFY12 rental income; (b) competition risks over tenants and assets; and (c) macro-economic headwinds. Upside risks include more yield-accretive acquisitions, redevelopment projects, and better-than-expected positive rental reversions moving forward.
• All Singapore-based assets. AAREIT enjoys high portfolio occupancy of 99.2% with an average security deposit of about 8.1 months per property. It has divested several low-yields properties such as 23 Changi South, Asahi Ohmiya Warehouse, and 31 Admirality Road in 2011–2012. It also has six properties, apart from 20 Gul Way, whose plot ratio utilisation is below 60%, thus making them potential candidates for redevelopment. AAREIT is presently in a sweet spot with its exposure in the logistics and multi-factory space (price index rose by 31.6% and 25.4% YoY in 1Q12, respectively).
• Risk. Downside risks, in our view, include a relatively short lease expiry of 2.62 years. Two large
assets, 27 Penjuru Lane and 8&10 Pandan Crescent, are expiring in FY13. However, overall lease expiry has been reduced from 29.9% in end-Mar to 18% in end-Jun (incl. subleases), following lease extensions. There are also varying degrees of: (a) concentration risks as the top ten tenants constitute 70.5% of 4QFY12 rental income; (b) competition risks over tenants and assets; and (c) macro-economic headwinds. Upside risks include more yield-accretive acquisitions, redevelopment projects, and better-than-expected positive rental reversions moving forward.
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