AIMS AMP Capital Industrial REIT - DBS Research 2018-07-26: Demonstrating Resilience

AIMS AMP Capital Industrial REIT - DBS Group Research Research 2018-07-26: Demonstrating Resilience AIMS AMP CAP INDUSTRIAL REIT SGX:O5RU

AIMS AMP Capital Industrial REIT - Demonstrating Resilience

  • AAREIT 1Q19 DPU of 2.5 Scts was in line
  • Occupancy lifted from 90.5% (4Q18) to 91.5% (1Q19)
  • Redevelopments ongoing at 3 Tuas Ave 2, but significant untapped potential remains
  • Maintain BUY; Target Price of S$1.55

What’s New

Focus on strong sequential growth; 1Q19 DPU of 2.5 Scts was in line.

  • Despite soft market conditions and absence of contributions from 10 Soon Lee Road (divested in Mar 2018) which led to lower gross revenues (-5.2%) and NPI (-3.4%) on a y-o-y basis, we believe that AIMS AMP Capital Industrial REIT (AA REIT)’s strong sequential performance demonstrates its resilience.
  • Gross revenue and NPI improved sequentially by 3.2% and 10% q-o-q to S$28.9m and S$19.4m in 1Q19, respectively. The improved performance was mainly driven by maiden rental contributions from 51 Marsiling Road (end-Apr) and increase in contributions from 8 Tuas Ave 20 and 27 Penjuru Lane after the completion of their respective fit-out periods. 
  • Meanwhile, lower share of results from Optus Centre (-8.8% y-o-y to S$3.3m) - where AA REIT holds a 49% interest - mainly reflected the stronger SGD vs AUD.

Distributable income was up 7.1% y-o-y to S$17.1m in 1Q19. 

  • AA REIT typically exhibits an increasing DPU trend through the quarters. While it has maintained a 2.5 Sct dividend for 1Q19 (similar to 1Q18) - which at 24% of our FY19F estimates was in line - we believe there could be room to raise distributions in subsequent quarters if operational improvements are sustained.

~ SGinvestors.io ~ Where SG investors share

Occupancy lifted to 91.5% vs industrial average of 89% but rent pressures remain.

  • Portfolio occupancy also improved sequentially from 90.5% in 4Q18 to 91.5% in 1Q19, which compares well against industrial average of 89%.
  • During the quarter, AA REIT executed c.31,886 sqm of new and renewal leases, representing c.5% of portfolio NLA. 
  • Given ongoing industry pressures, reversions for renewed sites remained negative at -8% in 1Q19 vs -24% in 4Q18 – the improving trend is in line. 

Worst over for 20 Gul Way?

  • Approximately 14.1% of AA REIT’s leases (by gross rental income) are due for renewal in FY19F, which includes 3.4% from 20 Gul Way. Given increased enquiries, the Manager is cautiously optimistic that occupancy rates (which stood at c.88% in FY18) for the asset are bottoming out. 

Unlocking interest savings of c.S$700K p.a..

  • The successful refinancing of facilities due in Nov 2018 and Feb 2019 effectively extends AA REIT’s weighted average debt maturity from 1.6 years (vs 1.8 years in 4Q18) to 3.1 years on a pro forma basis. 
  • SGinvestors.io ~ Where SG investors share
  • Importantly, this would give rise to substantial interest savings of c.S$700K p.a., which should continue to feed through positively in the subsequent quarters. 

Significant untapped potential.

  • Organic growth opportunities is a core focus for AA REIT. Apart from the ongoing redevelopment of 3 Tuas Ave 2, we see further opportunities for value extraction ahead on > 500,000 sqft of untapped GFA. 
  • We estimate the unlocking of unutilised GFA could lift its proforma FY18 revenue and NAV by 15.8% and 7.9%, respectively 

Carmen TAY DBS Group Research Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2018-07-26
SGX Stock Analyst Report BUY Maintain BUY 1.550 Same 1.550