19Jun

Seen as potential takeover focus with undiscovered GFA, AA REIT gets a ‘BUYCALL’ from DBS

DBS Group Research likes AIMS AMP Capital Industrial REIT (AA REIT) for its enhanced and sought after portfolio, better than expected yields and takeover plausibility.

In a Tuesday report, lead examiner Carmen Tay says AA REIT is interesting for its 600,000 sf of undiscovered gross floor zone (GFA), which is one of the most elevated among peers. Given the prime area of chose properties, Tay trusts the director can conceivably redevelop these locales into future-confirmation resources like server farms.

“We evaluate the opening of unutilised GFA could lift its expert forma FY18 income and NAV by 15.8% and 7.9%, separately,” says Tay.

With combinations among mechanical REITs in center, Tay additionally trusts AA REIT could be a potential takeover target given its divided shareholding structure and access to undiscovered GFA inside the portfolio.

Moreover, AA REIT offers speculators a higher level of salary conviction in front of the area’s foreseen recuperation in 2020 with alluring profit yields of 7.4%-7.6% p.a. over FY19F-21F, bolstered by ace leases with worked in rental accelerations.

Counting undiscovered GFA, AA REIT’s inferred yield (NPI/EV) of 6.4% would put them at the upper end of its associate scope of 5.1%-6.6%, includes Tay.

“Start with ‘purchase’ and DCF-based target cost of $1.55, in light of WACC of 6.6% and terminal development rate of 1.5%. The redevelopment of AA REIT’s underutilized locales could raise its reasonable incentive to $1.65,” says Tay.

As at 2.17pm, units in AA REIT are exchanging at $1.38 giving it a yield of 7.5% in view of FY19F DPU of 10.3 pennies.

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