SINGAPORE (June 19): DBS Group Research likes AIMS AMP Capital Industrial REIT (AA REIT) for its diversified and in-demand portfolio, above-average yields and takeover possibility.
In a Tuesday report, lead analyst Carmen Tay says AA REIT is unique for its 600,000 sf of untapped gross floor area (GFA), which is one of the highest among peers. Given the prime location of selected properties, Tay believes the manager can potentially redevelop these sites into future-proof assets like data centres.
“We estimate the unlocking of unutilised GFA could lift its pro forma FY18 revenue and NAV by 15.8% and 7.9%, respectively,” says Tay.
With consolidations among industrial REITs in focus, Tay also believes AA REIT could be a potential takeover target given its fragmented shareholding structure and access to untapped GFA within the portfolio.
In addition, AA REIT offers investors a higher degree of income certainty ahead of the sector’s anticipated recovery in 2020 with attractive dividend yields of 7.4%-7.6% p.a. over FY19F-21F, supported by master leases with built-in rental escalations.
Including untapped GFA, AA REIT’s implied yield (NPI/EV) of 6.4% would place them at the upper end of its peer range of 5.1%-6.6%, adds Tay.
“Initiate with ‘buy’ and DCF-based target price of $1.55, based on WACC of 6.6% and terminal growth rate of 1.5%. The redevelopment of AA REIT’s underutilised sites could raise its fair value to $1.65,” says Tay.
As at 2.17pm, units in AA REIT are trading at $1.38 giving it a yield of 7.5% based on FY19F DPU of 10.3 cents.
