AIMS AMP - Maybank Kim Eng 2016-04-28: Perseverance to be Rewarded

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AIMS AMP CAP INDUSTRIAL REIT O5RU.SI 

AIMS AMP (AAREIT SP) - Perseverance to be Rewarded 

In line; tough year ahead, but growth thereafter 

• FY3/16 DPU in line, at 103% of our FY16F. We believe DPU will grow 5.5/6.3% in FY3/18-19, from new developments and tightening industrial supply from 2017. 
• Though FY3/17 could be another tough year, we urge investors to look ahead. 
• Pegging our unchanged 7.5% yield to blended FY3/17-19 DPUs with new FY3/19 forecasts, our TP climbs 4% to SGD1.55. 
• Maintain BUY. 

Respectable, despite tough leasing 

• FY3/16 revenue/NPI/DPU grew 7.8%/2.9%/2.5% YoY, meeting our estimates. 
• AAREIT displayed resilience in a weak leasing environment. 
• Average occupancy was 94.9%, just 1.1ppt below FY3/15’s 96%. 
• Full-year rent reversions averaged 7.6%, fairly strong although down from FY3/15’s 9.1%. 

DPU to dip first… 

• ARREIT’s 4Q16 suggested that FY3/17 could be another tough year. 
• QoQ, occupancy was unchanged at 93.4%. YoY growth for revenue/NPI/DPU was sub-1%. 
• QoQ, they contracted. While that can be explained from the absence of one-off cost recovery booked in 3Q, and rent loss from 8/10 Tuas due to fire damage, an element of rent-free periods from new tenants is also telling. 
• Our base case also factors in CWT’s progressive relinquishment of its master lease at 20 Gulway and the potential conversion of this property to multi-tenancy, as highlighted in our 22nd Mar report. 
• To reflect these risks, Gulway has been revalued c.SGD17m lower. 
• But as this is a quality-spec warehouse located near Tuas Megaport, we do not expect occupancy to dip below 90%. 

… before growing from AEI / tight supply 

• FY3/18-19, however, promise to be exciting: 
  1. new developments, 30/32 Tuas West, is 100% committed and 8/10 Tuas Ave; and 
  2. factory supply could tighten in 2017. 
• In fact, we foresee very tight supply of both factories and warehouses by 2018. 
• Occupancy should start to climb in 2017, before jumping in 2018. Accordingly, we model in DPU growth of 5.5%/6.3% for FY3/18 and 19.

Joshua Tan Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-28

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.55 Up 1.49