Towards Financial Freedom
AAREIT - New Extension For 20 Gul Way
AAREIT announced yesterday that it has entered into a conditional development agreement with logistics firm CWT Ltd, which would see it add 496,944 sq ft to 20 Gul Way via Phase 2 Extension and Phase Three. This announcement is largely in line with our forecast of a 11.8% increase in dividends per unit (DPU) for FY16, when extension works is completed in end-2014.
- 20 Gul Way plot ratio expansion to pave way for Phase 3. AIMS AMP Capital (AAREIT) recently announced that the Urban Redevelopment Authority has approved in principle its application to re-zone the plot ratio of 20 Gul Way from 1.4x currently to 2.0x. The increase will allow AAREIT to extend Phase 2 (Phase 2E has 123,253 sq ft) and add 373,691 sq ft to this plot of land in Phase 3. The cost of development for both phases totaling SGD77.15m is slightly lower than our previous estimate of SGD90m.
- CWT to lease new areas after completing extension works. The extension works, which will take an estimated development period of 17 months, are targeted for completion by Dec 2014. Under the agreement, CWT will develop the extension and upon its completion, lease the ground floor of the new space for a period of five years and two months, and levels two to five for 32 months, at an annual rent escalation of 2%.
- Funded by proceeds from recent placement. In announcing this project, AAREIT also indicated that the total development cost will be funded by proceeds from the SGD110m it raised via a recent placement of 68.8m units at SGD1.60 each in April.
- Room for growth in long run. Based on our assumption of the current rental rates for Phases 1 and 2, we project AAREIT's DPU at 13.3 cents (+15.3% y-o-y) for FY16, up from 11.9 cents previously. In addition, with c. 50% of its under-utilized plot ratio available for redevelopment, we expect the REIT to announce more upcoming projects in the future. Reiterate BUY, with an unchanged TP of SGD2.10, which reflects a forecast FY14 dividend yield of 5.3% and a potential upside of 26.5%.
Source: RHB
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