AIMS APAC REIT - Maybank Kim Eng 2020-01-31: DPU Recovery Underway

AIMS APAC REIT (SGX:O5RU)

AIMS APAC REIT - DPU Recovery Underway

We hosted an NDR for AIMS APAC REIT (SGX:O5RU) in Singapore. Key highlights include:
1. discussions on its 3Q20 operational performance;
2. rental recovery supported by easing logistics supply, and
3. acquisition growth profile.

DPU recovery remains on track in our view, with upside from acquisition growth and redevelopment optionality from its under-utilised GFA.
We have kept estimates unchanged, and see valuations as undemanding at 7+% DPU yield and 19% total return to our DDM-based target price. See AIMS APAC REIT Target Price (COE: 7.8%, LTG: 1.5%).

AIMS APAC REIT's 3Q20 revenue dipped 3.7% y-o-y and portfolio occupancy declined q-o-q from 92.2% to 89.4%, mainly due to the conversion of its master leases at 1A IBP and 20 Gul Way. Rents have stabilised in line with the market, and reversion was at -0.9% versus +1.2% in 2Q20 and -24.6% a year ago.
An extension of its master lease at Optus Centre in Australia on a 12-year master lease at 3.25% pa (from Jul 2021 following an AEI) has resulted in a 20% uplift in valuation for the property. Its exposure to CWT has fallen further to 4.8% of its overall gross rental income (from 7.9% in 2Q20) as leases expired at 20 Gul Way.

Supply for logistics properties in Singapore will slow to c.1.0% pa over 2020-23, from 6-7% in 2014-18. This should support a recovery in occupancy and rentals. AIMS APAC REIT's assets command a weighted average land lease expiry of 37.2 years (as of end-Dec 2019), versus a 30-year land lease on new industrial land sites, and with about 0.5m sf in untapped GFA from its underutilised portfolio.

Management continues to eye potential acquisitions in Singapore and Australia with the latter for its freehold quality and longer WALEs. Deals sized at SGD50-100m are in a sweet spot, and similar to the recent Boardriders APAC HQ in Queensland for AUD38.5m (SGD36.9m) at a 7.8% headline yield on 12-year initial lease term and +3.0% pa rental escalations.
AIMS APAC REIT's low 35.2% leverage and an estimated SGD350m in debt headroom (at 45% leverage limit) should support further deals.
See AIMS APAC REIT Share Price; AIMS APAC REIT Target Price; AIMS APAC REIT Analyst Reports; AIMS APAC REIT Dividend History; AIMS APAC REIT Announcements; AIMS APAC REIT Latest News.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-01-31

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