AIMS APAC REIT - Maybank Kim Eng 2019-04-26: Easing Into Stability

AIMS APAC REIT (SGX:O5RU)

AIMS APAC REIT - Easing Into Stability

We revised estimates following AIMS APAC REIT (SGX:O5RU)'s 4Q19 DPU, which rose 4.6% y-o-y and 10.0% q-o-q on weaker-than-expected rentals, despite stable occupancies.
We expect negative reversions to persist in the near term from the earlier 2014-17 supply surge. Accordingly, we cut AIMS APAC REIT's DPUs by 3-4% on slower rental growth assumptions. Despite this, DPU recovery is underway, supported by its first greenfield build-to-suit (BTS), while redevelopment growth optionality from its under-utilised GFA offers 4-5% potential upside.
Despite revisions, we reiterate BUY as valuations are undemanding at 7.2% DPU yield and 13% total return to our revised DDM-based SGD1.50 Target Price (COE: 7.9%, LTG: 1.5%).

AIMS APAC REIT's 4Q19 revenue rose 6.7% y-o-y with the contribution from 51 Marsiling Road (from Apr 2018) and higher rental and occupancy at 8 Tuas Avenue 20, which offset the weaker performance of 20 Gul Way (six phases of its master leases were converted to multi-tenancy leases) and 27 Penjuru Lane, and divestment of 10 Soon Lee Road at end-Mar 2018.
AIMS APAC REIT's portfolio occupancy was stable at 94.0% and above the 89.3% industrial sector average. AIMS APAC REIT continued to report negative rental reversion for its portfolio at -5.8% (from -24.6% in 3Q09 and -24.0% in 4Q18).
Management signed 11 new and renewal leases (21,400 sqm or 3.4% of its total NLA) during the quarter and looks to backfill its leases, which contribute about 20-28% p.a. of expiries over FY20-22. AIMS APAC REIT’s exposure to CWT was 8.9% of its gross rental income in 4Q19, of which 5.2% is set to fall with the expiry of its lease agreements in FY20.

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

AIMS APAC REIT's aggregate leverage was stable at 33.7% and low relative to its peers. We see DPU growth levers arising from further asset rejuvenation opportunities, with 7% or 0.5m sf of its portfolio GFA underutilised. We estimate these redevelopment projects could boost AIMS APAC REIT's DPU by 4-5%.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-04-26

SGX Stock Analyst Report BUY MAINTAIN BUY 1.50 DOWN 1.55