AIMS AMP - Maybank Kim Eng 2016-01-29: Aiming for better days

AIMS AMP - Maybank Kim Eng 2016-01-29: Aiming for better days AIMS AMP CAP INDUSTRIAL REIT O5RU.SI 

AIMS AMP (AAREIT SP) - Aiming for better days 

Weak Leasing. Maintain HOLD. Latent potential. 

  • 3Q3/16 results confirm a weak leasing environment. 
  • We temper our occupancy expectations by c.1ppt, which docks DPU expectations by 1.1- 1.7%. 
  • TP lowered accordingly to SGD1.45 from SGD1.47 on a 7.75% target yield. Maintain HOLD. 
  • While we expect flat DPUs over FY3/16-17, FY3/18 should see 4.9% growth from a redevelopment project, which translates into an attractive forward yield of 8.9% in the long term. 
  • AAREIT’s untapped GFA has the potential for more. 

Flat quarter as expected 

  • 3Q core revenue (adjusting for property tax recoverable from tenant), NPI including Associate, and DPU grew 5.1%/0.3%/0.7% YoY, respectively. 
  • Revenue was driven by Phase 3 of 20 Gulway, but NPI was weakened by extra expenses for two properties converted to multi-tenant in 4Q3/15, while contribution from associates was hit by the AUD depreciating c.9% over the FY. These were however, largely expected, and 9M NPI, associate incomes, and DPU forms 76.5%/75.7%/75% of our expectations. 

As with peers, low single digit reversions 

  • As with peers who have reported so far, 9M rent reversions are averaging in the low single digits, c.3.7%. 
  • Occupancy was mixed, improving three quarters in a row for factory space (90.6%/91.9%/93.2%), while for warehouses it declined (97.8%/97.8%/92.5%). 
  • Management shared that it was due to an MNC client who was obliged to move to its own build-to-suit. 
  • Although half the vacated space has since been committed, we still build in some vacancy risk, which docks our DPU expectations 1.1-1.7%. 

It’s all about FY3/18’s DPU growth, and that GFA 

  • The redevelopment of 30 & 32 Tuas West into a ramp-up warehouse with committed tenant should drive most of the 4.9% DPU growth in FY3/18, which translates into an attractive forward yield of 8.9%. 
  • In an environment of compressed cap rates and expensive equity fund raising, AAREIT’s untapped GFA of c.801k sf is potentially a valuable source of inexpensive yield accretion.

Joshua Tan Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-01-29
Maybank Kim Eng SGX Stock Analyst Report HOLD Initiate HOLD 1.45 Down 1.47