AIMS AMP Capital Industrial Reit (AAReit): obtained provisional permission in Jun to redevelop 20 Gul Way to 107.8k sm GFA (1.16m sf GFA). The property is currently one of AAREIT's larger properties at 35.1k sm GFA (valued at $42m), with significant underutilised plot ratio.
Assuming $150-200psf cost, StanChart estimates this project to cost $174 - 232m. But under the Property Fund Guidelines, REITs can only develop up to 10% of their deposited property, which implies that AAREIT can only undertake up to ~$84m of development.
Assuming AAREIT develops the project in phases, the trust could build 50% of the approved GFA for $84m as Phase 1. Expect some loss of income in FY11-13E during the re-development period, which may cause DPU to fall by 5-6%. However, upon completion, the asset could prove ~4% accretive to FY13/14E DPU if 6.5% yield on cost is achieved.
Such redevelopment could cause AAREIT's gearing to rise from 32% to 37%.
The REIT be releasing its 1Q11 results tmrw evening, and potentially more details could be available then.
StanChart reiterates Outperform rating, TP $0.23/unit.
AAREIT provides 9% 2011E DPU yield and is trading at 20% below NAV.
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