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NRA Capital Pte Ltd

Written by: Jacky Lee

Friday 30 Jan 2015

AIMS AMP Capital Industrial REIT - 3Q15 results announcement

3Q15 DPU up 2.2% yoy to 2.83 Singapore cents

Yield appears comparable to overall Singapore Industrial REITs’ yield, but 0.96x PBR is attractive compared to an average 1.1x PBR on Industrial REITs.

AIMS AMP Capital Industrial REIT (AA Reit) posted 3Q15 DPU of 2.83 Singapore cents, up 2.2% yoy from 2.77 Singapore cents. Net property income (NPI) increased 9.7% yoy to S$20.5m due mainly to rental contribution from newly completed properties at 103 Defu Lane 10 and Phase 2E of 20 Gul Way as they became income producing from 1 August 2014, and maiden rental contribution from Phase Three of 20 Gul Way which became income producing from 9 November 2014.

AA Reit (formally known as MacarthurCook Industrial REIT (MI-REIT)) is one of the few reits which only focus on industrial assets. It has been listed on the mainboard of the Singapore Exchange since April 2007. The REIT currently has 26 properties in its portfolio, with 25 in Singapore and one in Australia.

 

Key takeaways from 3Q15 results briefing:

  • Management expects revenue to continue to be strong given additional contribution from newly completed assets while rental rate increases achieved for renewals average 9.2%. Total 10 new/renew leases have signed or 2.7% of total NLA during the previous quarter.
  • New financing/borrowing has lower interest cost.
  • Total funding cost of 4.15% (high due to the AUD loan to part finance Optus Centre).
  • 60.0% of interest rate fixed for weighted average period of 2.6 years at 1.44% (Fixed Base Rate).
  • Undrawn available facilities S$153.2m has opportunity for acquisition.
  • Overall occupancy 95.9% is higher than JTC (about 90-91%).
  • Only 2% leases to expire this financial year (excluding master leases).
  • Continue to improve GFA on its existing projects - Commenced asset enhancements at 1 Kallang Way 2A for a modest investment of S$2.2m, expects annual rental income to rise from S$1.07m to S$1.39m or improves efficiency of the building to 83.1% from 76% currently.
  • The weighted average unexpired land lease was 40.5 years.
  • Currently, its master leases and multi-tenanted split is 50:50, management expect the multi-tenanted will grow bigger toward.
  • Primarily seeking acquisition opportunities in Singapore.
  • Growth can come from acquisition or enhanced existing projects
  • Australian view? Management likes it because the assets are primarily freehold but will be careful when looking.

 

Our View:

So far, since IPO in 2007, AA Reit has issued 3 rounds of right share placement and 3 rounds of new share placement. Including IPO funds raised of S$296.8m, to date, the group has raised total equity funds of S$824m, compared to S$961.4m net asset as at 31 December 2014. We view the return on equity to be a blemish on its track record.

However, the world financial crisis is partly to blame as well as previous management which did not seem focused before AIMS took over in Dec 2009.

Under the new management of AIMS AMP Capital Industrial REIT Management Limited, a joint venture REIT management company owned 50% each by AIMS and AMP Capital, AA REIT has grown significantly with a current market capitalisation of S$924.7m. 

At S$1.47, AA REIT trades at 7.5% consensus yield in 2015, this is comparable to overall Singapore industrial REITS with an average 7% to 9%. However, its 0.96x PBR looks attractive compared to an average 1.1x PBR on Industrial REITs. 

 


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