AIMS AMP (AAREIT SP) - Maybank Kim Eng 2018-02-01: Redevelopment Mode

AIMS AMP CAP INDUSTRIAL REIT O5RU.SI

AIMS AMP (AAREIT SP) - Redevelopment Mode

AIMS AMP (AAREIT)'s 3Q18 DPU of SGD2.62 was down 5.4% y-o-y but up 2.7% q-o-q. Results are in line, with 9M DPU at 68% of our FY18E, 73% after adjusting for new shares.
Near term, we expect weaker reversions due to industrial oversupply. The completion of its redevelopment project and first build-to-suit building should support FY18-20 DPUs.
We lower DPU by 6-10% for 6.5% new units issued recently for a private placement. Our new DDM-based Target Price is SGD1.50 (WACC 8%, LTG 1.5%). Implied 7.4% dividend yields are compelling against 6.7% for industrial REIT peers , especially with upside potential from any further AEI or redevelopment. BUY maintained.

Newly redeveloped 8 Tuas Ave 20 received its TOP on 29 Aug 2017. Its occupancy jumped q-o-q, from 43.4% to 83.7%. Meanwhile, Beyonics International has pre-committed to a 10-year master lease at AAREIT’s first build-to-suit development at 51 Marsiling Road, with minimum 2% pa rental escalations. Rental income is expected to commence in 1Q19.
With development cost 11% lower than its budget, the project achieved a profit of SGD8.1m, 2.3x initial estimates, while its 10% NPI yield is also ahead of its 8.9% guidance.
Additionally, AAREIT announced the divestment of its smallest asset, 10 Soon Lee Road, for SGD8.17m, at a 28% premium to its last valuation. Portfolio occupancy declined q-o-q to 88.4%, with a -15.1% rental reversion.

AIMS AMP (AAREIT)' aggregate leverage fell from 37.3% to 33.8% as at end-Dec 2017, as SGD55m was raised from a private placement of 42.1m new units priced at SGD1.305 apiece. This was to reduce borrowings and lift debt headroom.
We see further asset-rejuvenation opportunities. About 8% or 0.6m sf of its portfolio GFA is under-utilised. We estimate this could generate 5% DPU growth from additional AEI / redevelopment.

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/ 2018-02-01

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.50 Down 1.600