AIMS AMP (AAREIT SP) - Maybank Kim Eng 2017-10-26: 7.8% Div Yield Offsets Weak Leasing

AIMS AMP (AAREIT SP) - Maybank Kim Eng 2017-10-26: 7.8% Div Yield Offsets Weak Leasing AIMS AMP CAP INDUSTRIAL REIT O5RU.SI

AIMS AMP (AAREIT SP) - 7.8% Div Yield Offsets Weak Leasing

A quarter within expectations 

  • AIMS AMP (AAREIT)’s 2Q18 results were in line with our estimates, with DPU of SGD 2.55cts, up 2.0% QoQ, but down 7.3% YoY. 
  • Portfolio occupancy fell QoQ from 91.0% to 88.8%, with headline -21.1% rental reversion reflecting a weak leasing backdrop, conversions at 20 Gul Way, and ramping up of its 8 Tuas Ave redevelopment project. 
  • We have kept our forecasts unchanged as we see a recovery lag for industrials against positive macro growth momentum support of the 7.8% div yield, while potential AEI/ redevelopment upside has not been factored in. 
  • Maintain BUY and DDM-based TP of SGD1.60.

2Q18 results in line, CWT leases falling away 

  • The performance reflects an overall weak leasing backdrop for industrial properties during the quarter and conversion pressures at 20 Gul Way.
  • Portfolio occupancy fell QoQ from 91.0% to 88.8%, but should improve going forward as 8 Tuas Ave 20, which is currently 43.4% occupied, and is being progressively backfilled following its redevelopment.
  • AAREIT reported -21.1% rental reversion on its expiring leases (2.3% of portfolio), and has YTD renewed more than 40% of its FY18 expiring leases. 
  • Tenancy risk has abated with CWT now at 13.2% of gross rental income, down QoQ from 19.2%, as its master leases expire.

Redevelopment lift to DPUs, with growth optionality 

  • Its redevelopment at 8 Tuas Ave 20, which boosted the property’s GFA by 35% to ~159k sqft, received its TOP on 29 Aug 2017. A 10-year lease with rent escalations has been secured for the ground floor. 
  • Meanwhile, its greenfield build-to-suit (BTS) development at 51 Marsiling Road remains on track for completion in the current quarter, and is pre-committed to Beyonics Int’l on a 10-year master lease with rent escalations.

Maintain SGD1.60 TP and BUY 

  • We have kept unchanged our forecasts and DDM-based TP at SGD1.60. This implies a 7.8% div yield, which is compelling given the potential upside from AEI or redevelopment-led DPU growth.
  • We see further asset rejuvenation opportunities, with 37.3% gearing, the lowest among small-cap industrial REITs. 
  • We further see ample funding options, given that strong market liquidity for yield has supported ESR-REIT (ESR-REIT, SGD0.57, NR) in raising SGD150m perpetual securities 4.6% yesterday. With 9% of its portfolio GFA under-utilised, we estimate this could generate 5% DPU growth from additional AEI/redevelopment projects.

Swing Factors


  • Earlier-than-expected pick-up in leasing demand for light industrial and logistics space driving improvement in occupancy.
  • Better-than-anticipated rental reversions.
  • Accretive acquisitions or redevelopment projects.


  • Prolonged slowdown in economic activity could reduce demand for light industrial and logistics space, resulting in lower occupancy and rental rates.
  • Termination of long-term leases contributing to weaker portfolio tenant retention rate.
  • AUD/SGD volatility which could impede hedging efforts and affect DPU.
  • Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.

Chua Su Tye Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-10-26
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.600 Same 1.600