The Positives
The Negatives
Outlook
The outlook is stable. Contribution from acquisitions buffered the impact from the lower occupancy during 3Q FY17/18. We expect the same in the 4Q FY17/18 as only 5.1% of NLA is up for renewal. The tapering new supply of industrial space in 2018, should release some of the ongoing over-supply pressure.
Maintain Accumulate; higher target price of $2.89 (previously $2.86)
Our forecast remains largely unchanged, after factoring in the acquisition of 108 Wickham Street, Australia in December 2017 and divestment of 84 Genting Lane (contributed 0.24% of FY16/17 GRI) in January 2018.
We expect a stable 5.8% yield and our target price gives an implied 1.36 times FY18e forward P/NAV multiple.
Relative valuation
A-REIT is trading above the peer average P/NAV multiple and at a lower 12M-trailing yield than the peer average.
Investment highlights
Figure 1: Acquired 108 Wickham Street Business Park property in Brisbane, Australia on Dec 22, 2017
Figure 2: Divested 84 Genting Lane, Singapore on Jan 19, 2018
Source: Company 3Q FY18 Financial Results Presentation, 25 January 2018
Acquisition of speculative build property in Australia
At S$30.8mn, the property value is ~0.3% of current AUM. Hence we do not think this will be a material contribution to the portfolio. The benefit is it will diversify the portfolio’s sources of income, and further mitigate the reliance on any one property.
Figure 3: Proposed acquisition, expected completion 3Q FY18/19 (i.e. 4Q CY2018)
Source: Company 3Q FY18 Financial Results Presentation, 25 January 2018
Richard covers the Transport Sector and Industrial REITs. He graduated with a Master of Science in Applied Finance from the Singapore Management University. He holds the CFTe and FRM certifications and is a CFA charterholder.
He was ranked #2 Top Stock Picker (Asia) for Real Estate Investment Trusts in the 2018 Thomson Reuters Analyst Awards, and ranked #2 Top Stock Picker (Singapore) for Resources & Infrastructure in the 2016 Thomson Reuters Analyst Awards.