■ Fourth-largest industrial SREIT with 60% rental exposure to warehouses, 20% to factories & 20% to business parks.
■ Forecast FY3/16-18 DPU growth of 1.4%/1.4%/5% on rent escalations & redevelopment project. Potential to increase NLA by 11% from unlocked plot ratios.
■ Initiate with HOLD, as no immediate catalysts. TP of SGD1.47 based on 7.75% yield target applied to FY3/17 DPU. Risks include 22% exposure to single tenant, CWT.
Unutilised plot ratio
Sponsored by AMP Capital, a leading Australian property investor and the AIMS Financial Group, AAREIT has 26 properties with 6.1m sf of net lettable area (NLA). It has c.60% exposure to warehouses by rental income and 20% to business parks. We are more positive on these sub-sectors than factories, where it has 20% exposure. Over 2016-2018, factory supply is estimated to be 1.2x historical demand vs 1.0x for warehouses and 0.5x for business parks.
We expect FY3/16-18 DPU to grow 1.4%/1.4%/5%, from rent escalations for master leases (49% of its rental income) followed by the redevelopment of a warehouse, which will contribute in FY3/18. Moreover, AAREIT has the potential to expand its NLA by 11% at existing properties, which have unutilised plot ratios. It has 14% exposure to Australia via its 49% ownership of a business park, which is on long-term lease to Optus. The property was introduced to it by its sponsors and Australia remains its desired market.
After redevelopment, AAREIT’s gearing is expected to stay low at 33.2% (30.9% in 2QFY3/16). This affords it debt headroom of SGD320m to pursue other opportunities.
Initiate with HOLD
We initiate coverage with HOLD and a TP of SGD1.47, based on a 7.75% yield target on FY3/17 DPU. Risks include its 22% exposure to single tenant CWT at its major property, 20 Gulway. (Read Report)
Source : Maybank Kim Eng Research