AIMS AMP CAPITAL INDUSTRIAL REIT In Focus

AIMS AMP CAPITAL INDUSTRIAL REIT

 ALP REIT INVESTMENT CLUB        

AIMS AMP CAPITAL INDUSTRIAL REIT (O5RU)

 
(20th February 2016) Close: $1.2950 
12-M Target price: $1.81 
 
1.)    Type of Reit: Industrial

2.)    Number of property in the portfolio: AIMS AMP CAPITAL INDUSTRIAL REIT has 26 properties. (as of 31 December 2015)

3.)    Top 5 properties that generates the highest revenue (Decreasing order):
(No business segment information has been prepared as all its investment properties are used mainly for industrial (including warehousing and office park) purposes.)
Aim(1)
4.)    Challenges:
1. While overall occupancy rates are relatively high at about 92%, with the oversupply of industrial properties in Singapore, the vacancy rate for warehouses may plunge.
2. In a rising interest rate environment and also softening rentals, there IS NO plan to hold back a percentage of distributable income to lower the gearing level. The REIT’s gearing level is 32%, and as we expect property values to decline, the gearing level could bump up.
3. From a bird’s’ eye view, there is global macroeconomic uncertainty and there is the threat of a recession looming. Zooming in, there is a consistent drop in non-domestic oil exports quarter-over-quarter in Singapore
4. Investment in Iskander is an attractive option for companies to take advantage of cost arbitrage between MY & SG (Ringgit & S$), hence some local companies are enticed to move across the Causeway to take advantage of this fact.The biggest challenge is in retaining and motivating companies to continue their businesses here, especially industrial businesses which require a lot of land. The only thing stopping a mass flocking of businesses to Johor is the difficulty in finding labour, especially skilled labour.
 
5.)  Strengths:
     With a diverse tenant base across a range of sectors, and a good mix of master and multi-tenant leases, they are better placed to manage rental risks in the current challenging market.
     Strong and stable cashflows
1) Occupancy of 93.4%
2) Weighted average lease expiry of 2.92 years
3) Average security deposit of per property of approx 4.6 months
4) Built-in rent escalations for master leases
     Long land lease expiry of 39.5 years
     Potential to expand– 801,334 sqft of potential untapped gross floor area (GFA)
     Asset quality is a pertinent concern when we invest in REITs. The REIT is picky not only when it comes to buying and divesting properties, they are also picky when it comes to which existing properties should benefit from asset enhancement initiatives (AEIs). Active portfolio management is something the REIT does very well, in my opinion.
                                                            
6.)    Significant (and most recent) events:
1)Gross revenue and net property income for 3Q FY2016 increased by 9.5% and 2.7% respectively compared to a year ago.
2) Distribution to Unitholders in 3Q FY2016 increased by 2.2% y-o-y to S$18.1 million. •
3)DPU performance: 2.85 cents per Unit for the quarter (increase of 1.8% q-o-q from 2.80 cents per Unit).
4) Executed 18 new and renewal leases in 3Q FY2016, representing 23,276.3 sqm at a weighted average rental increase of 0.6% on the renewals.
5) Portfolio occupancy remained healthy at 93.4%, which is above the industrial average of 90.8%.
 
7.)    GTI Ranking(last column): -Not applicable for REITs-
 
8.)    TABLE:
aims(2)
1 Bank covenant: minimum of 2.5 times                                
9.)  Recommendation: HOLD. There is a general consensus that non-oil domestic exports (NODX) are going to go down in the near future, which includes the industrial market. However, the median estimated close in 12 months time is 1.46 (SGD), which is a 20.46% increase from the current close price of 1.30 (SGD). In the long run, this REIT has a bright future and many analysts say it may even outperform the market, once NODX stability is achieved.
COMPILED BY: VARUN SUNIL DESAI
DISCLAMER: Readers should not rely solely on information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

 

 

Print Friendly
Visited 13 times

Leave a Comment