Source: Macquarie Equities Research

Event

• Before market open this morning, AIMS AMP Capital Industrial REIT (AAREIT) reported FY3/12 distribution income of S$46.3 million, DPU of 10.45 cents, +5.3% YoY. The results were in line with our estimate of S$45.4million. Outperform maintained.

Impact

• Results highlights. Active reconstitution of portfolio, by selling three assets above book and improving yields on its other assets drove DPU by +5.3% YoY. About 20% of NLA were leased at 10-15% higher than preceding rents. Revaluation of properties of S$35.8million resulted in a +3.8% uplift over March 2011 levels and increased its book value from S$1.37 to S$1.41.
   
• Leasing updates. Two of its largest assets (8 & 10 Pandan Crescent and 27 Penjuru) will come off mater leases in April 2012 and Dec 2012 respectively. Re-leasing of 8 & 10 Pandan was completed with average rents some 10-15% than those under the master lease. For 27 Penjuru, AAREIT is in advanced negotiations with sub-tenants. Overall, AAREIT expects similar rental reversion rates of 10-15% for the portfolio in FY13.
   
• Gul Way redevelopment update. Construction of Phase 1 Gul Way redevelopment is on track for completion in Nov 2012. This project (S$196.8 million) is already master leased to CWT Ltd and it is expected to generate a net property income of S$15.9m or a yield-on-cost of 8.1%.
   
• Gearing of 30.0%. This will fall slightly to 28.8% post completion of the sale of an asset announced earlier. AAREIT recently secured a credit rating of BBB- from Standard and Poor’s. A Distribution Reinvestment Plan was
  announced.

• DPU raised by less than 3% in the next two years.

Price catalyst

• 12-month price target: S$1.42 based on a DCF methodology.
• Catalyst: Good progress in master lease conversion at 27 Penjuru and completion of phase one of Gul Way

Action and recommendation

•  AAREIT is executing well in our opinion. It is the best performing SREIT in our coverage universe with +25.4% YTD return. Despite the outperformance of 10.3% versus the FSTI index YTD, AAREIT is still attractive, trading at 0.84x P/BV and offers a yield of 9.0% in FY13. Outperform maintained.

 Macquarie Equities Research April 12.pdf