“Fundamentals remain positive, with potential upside from its newly announced redevelopment project,” says analyst Chua Su Tye in a Thursday report. Maybank has a DDM-based target price of $1.50 which implies 16% total return including the 7.6% dividend yield.
AAREIT reported 4Q18 DPU of 2.63 cents, down 5.4% y-o-y on an expanded unit base from its Dec 2017 placement. While portfolio occupancy improved q-o-q to 90.5% from 88.4%, the rental reversion of –24.0% versus –15.0% in 3Q18 suggests industrial oversupply headwinds could persist into 2H18.
See: AA REIT's 4Q DPU drops 5.4% to 2.63 cents
In FY18, AAREIT divested its smallest asset - 10 Soon Lee Road - at 28% above valuation, and secured TOPs for two projects. Its fourth redevelopment property at 8 Tuas Ave 20 is 83.2% occupied. Its first greenfield BTS development at 51 Marsiling Road, pre-committed to precision engineering specialist Beyonics on a 10-year master lease with annual rental escalations, should contribute from 1Q19. Management also announced plans to redevelop its property at 3 Tuas Ave 2 into a modern ramp-up facility.
“This should increase GFA by 52% once completed. We will factor this into our estimates once details are available,” says Chua.
As at end March, aggregate leverage stood at 33.5%, down from 37.3% in 2Q18, due to the $55 million equity increase. Post 4Q18, AAREIT has secured about $240 million in committed facilities to lengthen its debt maturity from 1.8 years to 3.3 years.
“We see further asset rejuvenation opportunities, with about 7% or 0.5 million sf of its portfolio GFA underutilised,” says Chua, “We estimate redevelopment projects could boost DPU by 4-5%.”
As at 12.24pm, units in AAREIT are trading at $1.39.
