AAREIT – Attractive yield, low gearing and locked-in growth
■ Results inline as DPU growth kicks in: AAREIT 1H14 DPU at S$5.25cts (+5% YoY) was in-line with our and consensus estimates (48% of full year). For 2Q14, AAREIT delivered a DPU of S$2.75cts (+10% YoY and QoQ) as revenue increased 25% YoY to S$27m, while NPI was up 24%YoY to S$18m. Gearing was at 25.2% (vs 25.4% in 1Q14) with no refinancing till Oct-15 and cost of debt of 4.1%, which is fully hedged.
■ Steady occupancy with strong reversions and growth: Overall occupancy was stable at 98% (flat QoQ) and AAREIT achieved rental reversion of 21% for leases renewed during the quarter. 20 Gul Way Phase 2E & Phase 3 and 103 Defu Lane remain on track and will be progressively completed over FY14-15, thus, aiding in DPU growth. In the meantime, the recently completed 20 Gul Way Phase 2 will continue to drive DPU growth over 2H14.
■ Maintain BUY: We like AAREIT for its high DPU CAGR of 4.3% over FY13-16E, combined with potential for further redevelopments and acquisitions over the next 12-24 months. AAREIT can still potentially redevelop 12 properties (yield on cost 8-10%) over the next few years (underutilized plot ratio) and add another ~15% to its existing NLA (13% to NPI). Furthermore, management remains on the lookout for acquisitions and could likely acquire assets in Australia over the next six months, as gearing remains low. AAREIT offers an attractive 7.3% FY15E and trades at (1.0x P/B). We maintain BUY.
Publish date: 24/10/13