“We estimate the unlocking of unutilised GFA could lift its pro forma FY18 revenue and NAV by 15.8% and 7.9%, respectively,” says Tay.
With consolidations among industrial REITs in focus, Tay also believes AA REIT could be a potential takeover target given its fragmented shareholding structure and access to untapped GFA within the portfolio.
In addition, AA REIT offers investors a higher degree of income certainty ahead of the sector’s anticipated recovery in 2020 with attractive dividend yields of 7.4%-7.6% p.a. over FY19F-21F, supported by master leases with built-in rental escalations.
Including untapped GFA, AA REIT’s implied yield (NPI/EV) of 6.4% would place them at the upper end of its peer range of 5.1%-6.6%, adds Tay.
“Initiate with ‘buy’ and DCF-based target price of $1.55, based on WACC of 6.6% and terminal growth rate of 1.5%. The redevelopment of AA REIT’s underutilised sites could raise its fair value to $1.65,” says Tay.
As at 2.17pm, units in AA REIT are trading at $1.38 giving it a yield of 7.5% based on FY19F DPU of 10.3 cents.
