SINGAPORE (Apr 26): Maybank is adjusting its estimates for AIMS AMP Capital Industrial REIT (AAREIT) following 4Q18 results even though FY18 DPU of 10.20 cents came in line with the house and Street estimates.
Although negative reversions in light of industrial oversupply are likely to continue in the near term, DPUs should see support from its fourth completed redevelopment, and its first greenfield build-to-suit (BTS), says Maybank.
“Fundamentals remain positive, with potential upside from its newly announced redevelopment project,” says analyst Chua Su Tye in a Thursday report. Maybank has a DDM-based target price of $1.50 which implies 16% total return including the 7.6% dividend yield.
AAREIT reported 4Q18 DPU of 2.63 cents, down 5.4% y-o-y on an expanded unit base from its Dec 2017 placement. While portfolio occupancy improved q-o-q to 90.5% from 88.4%, the rental reversion of –24.0% versus –15.0% in 3Q18 suggests industrial oversupply headwinds could persist into 2H18.
See: AA REIT's 4Q DPU drops 5.4% to 2.63 cents
In FY18, AAREIT divested its smallest asset - 10 Soon Lee Road - at 28% above valuation, and secured TOPs 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 also 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,” says Chua.
As at end March, aggregate leverage stood at 33.5%, down from 37.3% in 2Q18, due to the $55 million equity increase. Post 4Q18, AAREIT has secured about $240 million 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 0.5 million sf of its portfolio GFA underutilised,” says Chua, “We estimate redevelopment projects could boost DPU by 4-5%.”
As at 12.24pm, units in AAREIT are trading at $1.39.