Category: AIMSAMPIReit
AIMSAMPReit – Phillip
1QFY11 Results
• 1Q11 revenue of $16.0 million, net property income of $11.7 million, distributable income available to unitholders of $8.1 million.
• 1Q11 DPU 0.5376 cents
• Maintain Hold recommendation with fair value of $0.23
Stable results
AIMS AMP Capital Industrial REIT (AAC) recorded 1Q11 revenue of $16.0 million (+46.4% yy, +2.9% q-q), net property income of $11.7 million (+26.1% y-y, -1.2% q-q) and distributable income available to unitholders of $8.1 million (+100.1% y-y, +2.5% q-q). AAC paid out 97.5% of the distributable income. DPU for the quarter was 0.5376 cents (-64.4% y-y, 0.0 q-q). The improved y-y performance is due to the result of the recapitalization exercise whereby four buildings were acquired by the REIT which contributed positively. However DPU comparison was impacted as new units were issued during the exercise. On a q-q basis, results were little changed. Occupancy rate improved slightly over the previous quarter from 96% to 97.2%. Separately, AAC announced that it has commenced litigation against a former tenant for breach of lease agreement. The REIT had taken possession of the property and found new tenants for the space. Management does not expect material impact on the earnings.
Capital value of the portfolio maintain constant with slight revaluation upwards on the sole Japan property. Total portfolio value is $636.1 million. Total debt of the REIT is $190.4 million and gearing is at 28.8%.
There was not much development in 1Q10 and results were within expectations. Management mentioned earlier in the year that near-term strategy is to carry out asset repositioning by divesting properties and recycling capital into higher value uses such as reducing debt or acquiring quality assets. Management is also looking to refinance the existing debt with new facilities that charge lower cost. We are thus expecting management to carry out these activities in the course of the year.
In our modeling, we had assumed a 3% vacancy rate for the portfolio which was in-line with 1Q11 occupancy rate of 97.2%. We keep our estimates and maintain our Hold recommendation with fair value of $0.23. We have a FY11E DPU of 1.99 cents which translate to a dividend yield of 8.9%.
AIMSAMPIREIT – SGX
Announcement of Litigation against Nova Engineering & Logistics Pte. Ltd.
AIMS AMP Capital Industrial REIT Management Limited, as manager (the “Manager”) of AIMS AMP Capital Industrial REIT (the “Trust”), wishes to announce that the Trust has commenced legal proceedings in the High Court of Singapore (the “Suit”) against its former tenant, Nova Engineering & Logistics Pte. Ltd. (“NEL”) for NEL’s breaches of a lease agreement (the “Lease”) entered into with the Trust in relation to 7 Clementi Loop, Singapore 129811 (the “Property”).
The Trust took possession of the Property on 9 March 2010 after the Lease was terminated following NEL’s breaches of the Lease. Since the termination of the Lease, the Manager has re-leased the Property to new tenants. The Property is currently 86.0% occupied.
The Manager has been advised by its solicitors of the Trust’s strong merits in the Suit and will announce further updates as and when material developments concerning the Suit arise.
The Manager does not expect the Suit to have a material impact on the earnings of the Trust as the income from NEL under the Lease represented approximately 2.8% of the Trust’s rental income for the quarter ended 31 March 2010. The loss has been mitigated by the Manager’s leasing efforts to re-lease the Property as described above. A bank guarantee equivalent to two years’ rental income held as rental deposit in relation to the Lease has already been called.
AIMSAMP – BT
AIMS AMP Capital Industrial Reit Management Limited said AIMS AMP Capital Industrial REIT has started legal proceedings in the High Court of Singapore against a tenant, CIT Cosmeceutical Pte Ltd, for, amongst other things, arrears in rental and repossession of the property.
The property in question is 2 Ang Mo Kio Street 65, Singapore 569058.
Industrial REITs – OCBC
On stronger footing
Stronger balance sheets. The industrial REIT sub-sector is in much a stronger position, in our view, compared to a year ago. REITs including A-REIT, Mapletree Logistics Trust, AIMS AMP Capital Industrial REIT [AAREIT, NOT RATED] and Cambridge Industrial Trust [NR] have all raised fresh equity within the past year or so. The sub-sector is on average geared at 33.5% debt-to-assets versus the broader S-REIT average of 30.6%. While the level of debt has decreased generally, there are still pockets of industrial REITs with higher leverage. Leverage levels range from 25% (Cache Logistics Trust, NR) to 42.6% (Cambridge).
Expecting some stability. The managers for the most part presented a cautiously optimistic outlook going forward – both in terms of a bottoming out of asset values and of rents. This is in line with the expected GDP growth of 7-9% in Singapore this year. Colliers expects the recovery in the exports and manufacturing sector to “support an expansion in demand from manufacturers”. This, along with the return of institutional funds, could drive “rents, land and capital values of singleuser factories and warehouses [up] to 10 percent in the next 12 months”. The demand-supply picture varies by asset type, but we do expect a stable-to-positive year for rents and asset values this year, barring significant shifts in the economic environment Big growth plans. Acquisitions are back on the table with transactions worth S$1.25b done in the last seven months; we could potentially see MLT, A-REIT and Cache grow their portfolios further. Balance sheet strength and ability to access capital competitively remains the key sticking point. The subsector has also indicated a new focus on development projects, which has been A-REIT’s domain until now. Asset enhancements and divestments appear to be popular strategies as well.
Valuation. In terms of forward yield, industrial REITs trade at a premium of 100 basis points to the broader sector. Interesting, industrial REITs are actually trading at a lower 5% discount-to-book versus 13% for S-REITs on average. There is significant divergence in valuations within the sub-sector: while A-REIT is trading at a 22% premium to book value, on the other extreme, AAREIT trades at a 32% discount to book. We think this is partially because of continued investor caution towards smaller industrial REITs. Nevertheless, if second-tier industrial REITs can present two to three quarters of sustained earnings performance and deliver on their strategic plans, we could see the valuation gap narrow. We have a NEUTRAL rating on the broader S-REIT sector.
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.