Thursday, November 28, 2013

AIMS AMP Capital Industrial REIT : Venturing into Australia (S&P)

AIMS AMP Capital Industrial REIT
Price: SGD1.50 Date: November 26, 2013
Venturing into Australia

First acquisition in Australia. AIMS AMP Capital Industrial REIT Management Limited (the Manager) has proposed to acquire 49% interest in Optus Centre, Sydney for AUD184.4 mln, marking AIMS AMP Capital Industrial REIT’s (the Trust) first foray into Australia. The transaction is expected to be completed by 1Q14, subject to approvals by the relevant Australian regulatory authorities and unitholders.

A premium business park. Optus Centre is a secure A Grade business park office complex (freehold property) which comprises six buildings (buildings A-F) with a total lettable area of 84,194 sq m. The property is located approximately 15 km to the northwest of the Sydney central business district (CBD) and 12 km to the northwest of the North Sydney CBD.

Long term lease in place. Optus Centre is 100% leased to Optus Administration Pty Limited for a weighted average lease term of 8.6 years (under three leases which expire June 2021, June 2022 and June 2023 with options to renew another 5 years) with fixed annual escalation of 3.0%.

Fully funded by debt. The acquisition will be fully funded by debt from existing and new debt facilities. 60.0% of the purchase price will be funded by a new five year AUD term loan facility (providing a natural currency hedge) while the balance will be funded by an existing dual currency SGD/AUD revolving credit facility. The Manager is looking at a minimum 50.0% interest rate hedging on the AUD debt. The Trust’s weighted average debt maturity will improve to 3.4 years from 2.8 years as at end-3Q13 on a pro forma basis. However, its aggregate leverage will also increase to 37.7% from 25.2% but remains manageable.

Yield accretive acquisition. We are positive on the proposed acquisition as it will contribute to the Trust’s long term growth and it shows that the Trust can leverage on the network and on-the-ground real estate expertise of its two Australian sponsors, AIMS Financial Group and AMP Capital. The proposed acquisition will increase the Trust’s distribution per unit (DPU) by 5.7% on a pro forma basis.

Earnings Outlook
Revenue Drivers:
The Trust’s rental income is contributed by single tenant master leases (FY13: 57.0%) and multi-tenancy properties (FY13: 43.0%). The master leases provide for longer lease durations and organic rental growth, supported by structured rent escalations on the 14 master leased properties.

Meanwhile, the 11 multi-tenancy properties (typically shorter leases of around three years) allow the Trust to enjoy potential positive rental reversions.

The proposed acquisition will increase the Trust’s exposure to master leases by 10.1% to 53.5% on a pro forma basis as at end-3Q13. Besides, the Trust’s weighted average lease expiry will increase to 4.0 years from 3.0 years. In addition, it will increase the weighted average land lease of the Trust’s portfolio to 43.3 years from 38.6 years.

The Trust’s exposure to business park property sector will also increase to 30.4% from 15.5%, which is positive given that business park space typically commands a rental premium to traditional industrial properties.

Meanwhile, Australia will contribute 17.7% of the Trust’s rental income, providing further diversification to its portfolio. To mitigate currency risk on income from the Optus Centre, its first year income will be fully hedged. Furthermore, the Manager will actively monitor exchange rates with an intention to fully or substantially hedge the income in future years.

Net Property Income (NPI) Outlook:
We leave our forecasts unchanged pending the completion of the proposed acquisition. We expect the Trust’s NPI to increase by 16.6% YoY and 7.5% YoY for FY14 and FY15, respectively.

The proposed acquisition will increase the Trust’s NPI yield to 6.6% from 6.3% on a pro forma basis.

Given the positive NPI outlook, we project the Trust’s DPU to grow by 4.5% YoY and 7.1% YoY to 11.2 cents and 12.0 cents for FY14 and FY15, respectively. We have not included contribution from the Optus Centre into our forecast pending deal completion. We estimate that the acquisition will raise our FY15 DPU by about 4.8%, assuming full year contribution.

Source/Extract/Excerpts/来源/转贴/摘录: S&P Capital IQ Equity Research
Publish date:26/11/13

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