Category: AIMSAMPIReit
AIMSAMPReit – OSK DMG
Appetite For More Projects
With the completion of Phase Two of 20 Gul Way, we believe AAREIT’s Management will soon announce its plan for Phase Three. Assuming the successful execution of Phase Three in 13 months, we expect 2015 DPU to jump by 12.3%. Based on our DDM-model (COE: 7.6%; TGR: 2.0%), we reiterate our BUY rating on this counter, with our TP revised higher to SGD2.10.
20 Gul Way plot ratio to grow from 1.4x to 2.0x. Recently, AAREIT announced that the Urban Redevelopment Authority (URA) has approved in principle its application to re-zone the plot ratio at 20 Gul Way from the existing 1.4x to 2.0x. This allows the REIT to develop a further 497,000 sq ft of gross floor area (GFA) at the property. While no details have been announced on Phase Three of 20 Gul Way, we estimate the development costs of Phase Three at c.SGD90m, based on the costs in developing Phase One and Phase Two.
Healthy gearing upon completion of development projects. AAREIT completed a placement of 68.8m shares at SGD1.60 per unit in April, having raised c.SGD110m. According to Management, c.75% of the gross proceeds (c.SGD107m) would be used to partially fund the Phase Three development of 20 Gul Way and the redevelopment of 103 Defu Lane 10. Assuming a development cost of SGD90m for Phase Three of 20 Gul Way, we expect AAREIT’s gearing to increase from the current 23.9% to a healthy level of c.34%-36% upon the completion of these projects. This indicates that unless other major acquisitions are in the pipeline, AAREIT will not risk going into any large-scale capital-raising in the near future.
Room for further growth in long run. Based on our speculated scenario of the successful execution of Phase Three of 20 Gul Way, we project AAREIT’s DPU at 13.3 cents (+15.3% y-o-y) in 2015 (from 11.9 cents previously). In addition, with c.50% of its underutilized plot ratio available for redevelopment, we expect the REIT to announce more upcoming projects in the future. Our TP represents a forecast FY14 dividend yield of 5.3% and a potential upside of 14.8%.