AIMS AMP - Maybank Kim Eng 2016-07-26: Step-ups provide stability

AIMS AMP - Maybank Kim Eng 2016-07-26: Step-ups provide stability AIMS AMP CAP INDUSTRIAL REIT O5RU.SI 

AIMS AMP (AAREIT SP) - Step-ups provide stability

1Q results in line

  • Core net property income (core-NPI) and DPU were about 25% of our full- year forecast. 
  • Master lease step-ups offset a slight occupancy drop and small negative reversions. 
  • Given the step-ups and interest savings this year, we turn less pessimistic that DPU could dip this year. 
  • FY17-19 DPU estimates are raised 4.7%/0.6%/2.6% with TP revised 2% higher to SGD1.58. 
  • Yield peg is unchanged at 7.5%, 1SD below the mean. Maintain BUY.

Rental step-ups steadied the ship

  • Core–NPI, including associates, advanced only 0.6% YoY, underscoring tough leasing conditions for warehousing, as supply is strong and economic conditions weak. 
  • Portfolio occupancy slipped to 92.7% (0.7ppts QoQ) and rent reversion averaged -1.6% (FY16: c.7.1%). 
  • What steadied the ship were several master leases kicking in this year with impressive built-in rental step-ups ranging between 2.5% and 7.5%. 
  • Distributable income similarly rose 0.5% YoY, but DPU was maintained at 2.75 Scts, no change YoY. 
  • AAREIT tends to ramp up DPU in later quarters with previously undistributed income as the year progresses.

Interest cost savings; 20 Gulway

  • A key positive going forward is SGD100m of medium term notes, which cost 4.9%, would be refinanced this August with interest savings upwards of SGD1m per year. 
  • As mentioned, given the step-ups and the savings, we turn less pessimistic that DPU this year could dip. FY17-19 estimates are raised 4.7%/0.6%/2.6%. 
  • Regarding concerns that 20 Gulway, AAREIT’s largest property under master-lease, is due for renewal this year, we have already fully factored into our estimates a complete conversion to multi-tenanted in a report on the 22nd March.

Redevelopments to drive growth

  • The redevelopment of 30/32 Tuas West Road and 8/10 Tuas Ave will drive growth in FY18-19. 
  • Warehouse supply, although strong in 2016-17, will tighten considerably in 2018. 
  • We expect AAREIT to take advantage of this as it still has 758.5k of untapped GFA in its portfolio (assuming 80% efficiency is about 9% of current NLA)

Joshua Tan Maybank Kim Eng | Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-07-26
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.58 Up 1.55