Professional research organisation SIAS recently produced a report on AIMS AMP Capital REIT which declares the REIT’s reposition for steady Growth. In the report it is mentioned that AIMS AMP Capital Industrial REIT (AA REIT) has successfully turned around from its distressed position 2 years ago and has the financial flexibility to now look for growth. The REIT has a strong new management team. The report mentions with two strong sponsors, AIMS Financial Group and AMP Capital Investors, AA REIT is now well positioned for steady long-term growth.
SIAS provide an ‘Invest’ rating based on an intrinsic value of S$1.24 per share. This represents a 17% potential capital gain on top of an 8.3% dividend yield forecast in FY13.
Fundamental Drivers behind AIMS AMP Capital REIT’s steady growth include:
Organic Growth from Redevelopment: AA REIT is currently redeveloping 20 Gul Way into a 5-storey ramp up warehouse facility. The rationale behind this redevelopment plan is to fully utilize its plot ratio. Rental income from this property is set to increase by S$12.7m upon completion. The contractor of the new facility is a subsidiary of CWT Limited, which will also be the master tenant upon completion. CWT Limited has aligned their interest with AA REIT by subscribing to S$2.5m of new units in September 2011. Under the master lease terms, CWT Limited will rent the ground and 5th floors of each phase for 5 years and 2 months. As for the 2nd, 3rd and 4th floors, the lease term is 4 years and 2 months. The lease terms include rent escalations at 2% per annum.
Stable Rental Income: AA REIT has stable rental income as 81.5% of total rental income (as at December 2011) is generated from master leases. Management is actively negotiating with sub-tenants to convert some of the master leases into multi-tenanted leases. As current industrial rents have rebounded strongly, it is believed that the conversion will allow AA REIT to capture higher rental income in the next few years. Management has also hedged 82.2% of their interest rate risk exposure as at December 2011.
Attractive Dividend Yield: SIAS forecast the dividend yield for FY12F to FY15F to be 8.3% to 9.2% respectively, upon the completion of the redevelopment at 20 Gul Way. Based on the SIAS conservative assumptions of a long-term growth rate of 2% and cost of equity of 9.5%, their dividend discount model points to a valuation of S$1.24 per share.
SIAS was founded by the Securities Investors’ Association of Singapore (SIAS) to provide investors with independent and professional insights and analysis on publicly listed companies.
Their report will be distributed to their network of SIAS members which comprises of approximately 70,000 retail investors.
SIAS Research - AAREIT Initiation Report.pdf