AIMSAMPIReit – Phillip

A New Name, A Fresh Start

• 3Q10 revenue of $12.6 million, net property income of $9.9 million, distributable income available to unitholders of $5.4 million.

• Total asset value of $565.9 million, gearing at 28.9%

• Fair value maintained at $0.22, recommendation upgrade from sell to hold 

A new name, a fresh start
AIMS AMP Capital Industrial REIT (previously known as MacarthurCook Industrial REIT) recorded 3Q10 revenue of $12.6 million (-3.3% y-y, +6.2% q-q), net property income of $9.9 million (+5.3% y-y, +9.1% q-q) and distributable income available to unitholders of $5.4 million (-14.0% y-y, +4.0% q-q). The lower y-y revenue was due to the lower recovery of property tax and land rent, which is reimbursable by tenants. However net property income showed increment for both y-y and q-q mainly due to the one-month revenue contribution from the 1A IBP property. For 3Q10, AIMS declared a special distribution prior to the issuance of placement units of 0.95 cents for the period from 1 Oct 2009 to 23 Nov 2009, and a distribution of 0.1868 cents for the period from 24 Nov 2009 to 31 Dec 2009. 

Portfolio asset value as at 31 Dec 2009 was $565.9 million. Additionally, the acquisition of the 4 properties from AMP Capital was completed on 11 Jan 2010. The property portfolio achieves an occupancy rate of 99.0%. 

We are expecting AIMSAMP REIT to report better growth in the next quarter from the full quarter contributions of the newly acquired properties 

Capital management

AIMSAMP REIT is definitely in much better financial shape now, after the tough recapitalization exercise last year. AIMSAMP REIT has total debt of $190.2 million, out of which $175 million is denominated in SGD and due in 2012. The remaining $15 million is JPY loan, which AIMSAMP REIT has already secured the credit facility to refinance it. Gearing is at 28.9%, which is an improvement from the pre-recapitalization gearing of 44.7%. 

Our concerns

We are definitely more optimistic of the REIT now, with an improved balance sheet and also properties that are providing good yields. We also see some good quality investors in the REIT. Our two main concerns now are

1. portfolio acquisition growth is constrained by the gearing limit of 35%

2. high interest cost that dampens distribution

One of the covenants in the refinancing facility is that AIMSAMP REIT will be subjected to a higher interest margin by 100 basis points if its gearing is subsequently increased to above 35%. Currently it is paying an interest margin of 3.5% on $175 million of loan. This essentially limits AIMS expansion plan to take on more loans and investors would also be adverse to equity funding after the recent dilution. Our second concern follows from the first point. Together with the interest margin, the total interest rate on the loan is 5.4%. If gearing breaches the 35% mark, interest rate would increase by another 1%. During a discussion with management, one of the strategies is the repositioning of the properties. Divesting assets and using the proceeds to pare down debt and subsequently taking on new loans with lower interest cost is one of the ways to add value to unitholders. 

Forecasts

We are forecasting 4Q10E DPU to be 0.36cents, bringing full year FY10E DPU to be 4.95 cents. Subsequently, we forecast FY11E DPU to be 2.01 cents, which translate to a yield of 9.3%, incorporating the full year contribution from the acquired properties but without assuming further acquisitions. In our view, it would be a big plus if management is able to execute its plan to lighten its interest expenses. On the other hand, collecting an annual yield of 9% sounds fine to us too. We are maintaining our fair value of $0.22 and upgrading our recommending from sell to hold.