AIMSAMPReit – Phillip

FY10 Results

• 4Q10 revenue of $15.6 million, net property income of $11.9 million, distributable income available to unitholders of $7.9 million.

• FY10 revenue of $50.9 million, net property income of $40.1 million, distributable income available to unitholders of $22.3 million.

• 4Q10 DPU 0.5376 cents, bringing FY10 DPU to 5.12 cents

• Maintain Hold recommendation with fair value of $0.23

A tumultuous year

AIMS AMP Capital Industrial REIT (AAC) recorded 4Q10 revenue of $15.6 million (+19.4% yy, +24.2% q-q), net property income of $11.9 million (+28.2% y-y, +20.3% q-q) and distributable income available to unitholders of $7.9 million (+57.9% y-y, +46.7% q-q). Full year FY10 revenue came in at $50.9 million (+0.2% y-y), net property income of $40.1 million (+8.9% y-y) and distributable income available to unitholders of $22.3 million (-4.6% y-y). To refresh our readers' memory, the REIT underwent a tough recapitalization exercise last year and subsequently changed its name from MIREIT to the present name. In essence, AAC managed to lower its gearing from over 40% pre-recapitalization to 28.9% currently. AAC also added 4 properties to its portfolio to shore up the balance sheet. The property portfolio now consists of 26 properties with an asset value of $635.25 million. Post-recapitalization, AAC now has total debt of $190 million which is due in 2012.

FY10 revenue was little changed from a year ago. The 4 properties were acquired in Jan 2010, therefore the contribution to full year revenue was not significant. High borrowing cost in FY2010 and the dilution of units from the rights issue resulted in a drop in DPU.

On the overall, actual full year results were not too far off from our estimates. Net property income and DPU were 5.9% and 3.6% above our numbers. From Fig 3, we can observe that the quarterly performance has been improving and the recapitalization exercise has worked out well. Fundamentals of the underlying portfolio remain fine, except for the drop in occupancy. The weighted average lease to expiry (WALE) is 4.4 years.

The near term strategy is to reposition the portfolio; divesting underperforming assets and using the proceeds to replace the current debt facility with cheaper facility. Management indicated that it is looking to sell the Japan property as the focus is on the Singapore market.

Furthermore it can't achieve economy of scale with a single property in Japan. One of the stated strategies is to increase the asset size to $1.4 billion within five years and to gear up to approximately 35% to fund the acquisitions.

FY10 was a difficult year whereby refinancing was due and the portfolio suffered a $41.4 million write-down in value. We think baring the dilution that resulted from the recapitalization exercise, AAC performed within expectations. Going forward, the REIT should be able to maintain its performance with the economy picking up. We have a DPU forecast for FY11E of 1.99 cents, which translate to 9% dividend yield. In view of the stability of the REIT, we are now ascribing a lower WACC of 9.2% versus 9.8% previously to our DCF model and arrived at a fair value of $0.23. Maintain Hold recommendation. We believe re-rating for AAC will depend on the actualization of the strategy to lower interest payment.