AIMS AMP Capital Industrial REIT - Maybank Kim Eng 2018-10-26: Steady Quarter; Rising Aims

AIMS AMP CAP INDUSTRIAL REIT (SGX:O5RU) | SGinvestors.io AIMS AMP CAP INDUSTRIAL REIT (SGX:O5RU)

AIMS AMP Capital Industrial REIT - Steady Quarter; Rising Aims


In line 2Q19; BUY for compelling DPU growth levers

  • Our forecasts are unchanged following in line (with MKE and consensus est.’s) 2Q19 results with DPU stable q-o-q at SGD2.5cts.
  • Near term, negative rental reversions could persist given oversupply of industrial space. DPUs however should be supported by its first greenfield build-to-suit (BTS).
  • Fundamentals remain positive, with redevelopment growth optionality from its under-utilised GFA offering 4-5% potential DPU upside.
  • Valuations are compelling too at 7.8% DPU yield and 19% total return to our DDM-based Target Price (COE: 8.0%, LTG: 1.5%). BUY.




Active leasing pushed up occupancies

  • AIMS AMP's 2Q19 revenue rose 17% y-o-y from a full-quarter contribution of its first greenfield BTS development at 51 Beyonics on a 10-year master lease with annual active leasing during the quarter pushed portfolio occupancy at -9.8% in 1Q19.
  • There was a similar peers, as the sector is coming off a huge supply surge quarters for excesses to clear. Management has expiring leases with 81% remaining in FY19.


Redevelopment/AEI initiatives on track

  • Its redevelopment work on 3 Tuas Ave 2 into a modern ramp-up facility with a 52% boost to GFA remains on track. We will factor in contributions from the asset when leasing details are available closer to its completion date. AAREIT further announced in Jul to undertake a SGD13.0m AEI at its 29 Woodlands Industrial Park E1 (NorthTech) facility to strengthen its portfolio in Woodlands, given long-term government-backed development plans for the area. Both projects are on track for completion in 2H 2019.


Stronger balance sheet, 4-5% DPU upside potential

  • Aggregate leverage remained stable at 33.6% and remains low relative to its peers. We see DPU growth levers arising from further asset rejuvenation opportunities, with about 7% or 0.5m sf of its portfolio GFA under-utilised.
  • We estimate these redevelopment projects could boost DPU by 4-5%.


Swing Factors


Upside

  • 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.

Downside

  • 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 Research | https://www.maybank-ke.com.sg/ 2018-10-26
SGX Stock Analyst Report BUY MAINTAIN BUY 1.500 SAME 1.500



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