Boustead Projects Ltd Wins Another Contract From AIMS AMP Capital Industrial REIT: What It Means For Both Stocks

Yesterday, AIMS AMP Capital Industrial REIT (SGX: O5RU) announced plans to redevelop its property, 8 & 10 Tuas Avenue 20. A recent fire incident had occurred at the property, which prompted the real estate investment trust to accelerate its redevelopment plans for the site.

Fortunately for AIMS AMP Capital Industrial REIT, which has a focus on industrial properties in Singapore, partial damages that were sustained in the fire – including the loss of income from the property – can be fully covered by insurance. In the REIT’s fiscal year ended 31 March 2015, the property had accounted for just 1% of total net rental revenue.

Currently, 8 & 10 Tuas Avenue 20 consists of a pair of two-storey detached industrial spaces. AIMS AMP Capital Industrial REIT’s plan is to turn them into one industrial complex that has ramp and cargo lift access. The redeveloped property would then be suitable for production and warehousing purposes.

Based on the trust’s own estimates, the redevelopment would likely cost S$27 million in total. AIMS AMP Capital Industrial REIT also expects the property to increase in value to around S$32 million after the redevelopment. Other things that would see growth in 8 & 10 Tuas Avenue 20 are the gross floor area of the real estate and the plot ratio. The former is expected to increase by 35% (or by 41,614 square feet) and the latter will climb from 1.03 to 1.4.

A beneficiary of AIMS AMP Capital Industrial REIT’s redevelopment plan is industrial real estate solutions provider Boustead Projects Ltd (SGX: AVM). The former has awarded the project to the latter. This is the second time Boustead Projects has been awarded a contract from AIMS AMP Capital Industrial REIT.

In choosing Boustead Projects, Koh Wee Lih, the chief executive of AIMS AMP Capital Industrial REIT, commented that the selection was made partly based on Boustead Projects’ “excellent track record.”

The order would help increase the order book of Boustead Projects to S$258 million. But, Boustead Projects also said that the order is not expected to have a material impact on the company’s business results for the fiscal year ending 31 March 2017.

Foolish Summary

Although the redevelopment project is expected to have very little impact on both AIMS AMP Capital Industrial REIT’s and Boustead Projects’ near-term business performance, it highlights a few things.

First, it shows AIMS AMP Capital Industrial REIT’s ability to be flexible when it comes to its asset enhancement strategy. Instead of simply following a fixed schedule, the trust was able to readjust its plans following an unexpected fire-damage incident.

Second, it highlights Boustead Projects’ strong reputation in Singapore as a leading design-and-build contractor for industrial real estate. A second win by the company marks AIMS AMP Capital Industrial REIT’s confidence in its ability.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own shares in any companies mentioned.