Towards Financial Freedom
Building On Its Strengths
We initiate coverage on AIMS AMP Capital Industrial REIT (AAREIT) with a BUY rating. Based on our DDM model, by assuming a terminal growth rate of 2.0% and a COE of 7.8% (with a risk-free rate of 1.6%, 0.8x beta and 6.8% equity risk premium), we arrive at our target price of SGD1.90. We believe the direction the trust's manager is currently taking will benefit the unitholders, thanks to its long-term growth potential.
- Unlocking value through redevelopment. To drive growth and unlock values within its portfolio, AAREIT's manager is dedicated to redevelop several of its properties with an underutilized plot ratio. Recently, its management estimated up to 50% of the total portfolio has underutilized plots that could be developed. Through this, the REIT will be able to unlock the values of its existing properties while avoiding the risks of overpaying for an asset, particularly when the capital values of industrial properties in Singapore are currently at their historic highs.
- Strong 4QFY13 results. AAREIT's DPU for 4QFY13 DPU was 3.14 cents (+16.3% y-o-y). Revenue rose to SGD23.8m (+17.3% y-o-y) while net property income grew by 10.6% y-o-y mainly due to the additional contribution from a full quarter's rental of Phase One of 20 Gul Way. In the subsequent quarters, we expect it to continue to register strong numbers on the back of the earlier-than-expected completion of 20 Gul Way and the redevelopment of 103 Defu Lane .
- DPU to grow despite recent placement. We forecast AAREIT's DPU to come in at 10.9 cents (+2.4% y-o-y) in FY14 and 12.0 cents (+10.3% y-o- Y) in FY15; despite the recent placement of 68.8m of new units. As indicated by AAREIT management, of the capital raised, c.75% of the proceeds will be used to partially fund its properties' redevelopment projects of properties.
- Initiate coverage with BUY and TP of SGD1.90. Given: i) a clear direction of the deployment of the recently-raised capital, ii) the disciplined control of its internal gearing level, and iii) its continued focus in seeking values within its portfolio, we believe AAREIT will be able to achieve stable and long-term growth for its unitholders. Currently trading at a 6.4% FY14 forecasted dividend yield, AAREIT is one of Singapore's highest yielding S-REITs. We initiate coverage on AAREIT with a DDMbased (COE: 7.8%, terminal growth: 2.0%) TP of SGD1.90.
Source: OSK
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CS Tan
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
