AIMS APAC REIT - DBS Research 2020-05-14: Organic Growth As A Line Of Defence


AIMS APAC REIT - Organic Growth As A Line Of Defence

  • Rental contribution from 3 Tuas Ave 2 commenced on 1 March 2020.
  • Gearing improved marginally to 34.8%, all borrowings due in FY21 have been fully committed to be refinanced.
  • Gross revenue fell 4.2% q-o-q to S$28.2m mainly due to the conversion of master leases into multi-tenancy leases.
  • AIMS APAC REIT's 4Q20 DPU of 2.00 Scts after the retention of S$2.9m; down 20% q-o-q.

Ongoing conversion of master leases to multi-tenancy leases

  • AIMS APAC REIT (SGX:O5RU)'s FY20 results would have been in line with our full-year forecast if not for the retention of S$2.9m of income in 4Q20.
    • S$2.9m of distributable income from Australia was retained to conserve cash; translating into 17% of 4Q20 distributable income.
    • 4Q20 DPU of 2.00 Scts would have been 2.40 Scts if not for the retention of income.
    • FY20 DPU should have been 9.90 Scts but was lowered to 9.50 Scts.
  • AIMS APAC REIT's 4Q20 revenue of S$28.2m was 4.2% lower q-o-q mainly due to conversion of master leases to multi-tenancy leases at three properties.
    • 1A International Business Park, 20 Gul Way, 30 Tuas West Road.
  • Rental contribution from 3 Tuas Ave 2 commenced on 1 March 2020.
    • 10-year triple-net master lease with rental escalations.
    • Contributed S$0.4m in 4Q20; expected to contribute c.S$4m in rentals per year on a stabilised basis.
  • AIMS APAC REIT's NPI for FY20 increased 13.5% y-o-y to S$89.1m mainly due to income contribution from Boardriders (Brisbane) and 51 Marsiling Road.
    • Boardriders Asia Pacific HQ in Brisbane was acquired on 15 July 2019.
    • 12-year master lease with a headline yield of 7.8%, annual rental escalation of 3%.
    • Property expenses were S$9.8m lower y-o-y mainly due to the adoption of FRS116 as well as property tax refund of S$2.3m for 20 Gul Way.
  • Property tax rebates of c.S$2.3m will be fully passed on to qualifying tenants.
    • Industrial tenants still remain relatively resilient; more than 50% of tenants are still operating.
    • Tenants from the F&B, retail and trading sectors are more impacted by the current lockdown.
    • Rent arrears and late payments have remained stable, no material increases from before.
    • To assist several tenants with their cashflows, slight deferment in rental payments were granted, i.e. rental payments can be made at the end of the month instead of mid-month.
    • Average of 3.6 months in security deposits.

Loans expiring in FY21 have been fully committed to be refinanced

  • A total of S$157m in borrowings will be expiring in FY21, and the refinancing of the entire amount has been committed.
    • A 4-year and 3-year term loan facility has been committed.
    • All-in borrowing costs will be very similar to existing loans; expect borrowing costs to remain flat.
  • AIMS APAC REIT has S$181m of committed bank facilities that remain undrawn.
  • Gearing improved marginally to 34.8% and all-in borrowing cost remains at 3.5%.
  • Healthy interest coverage ratio of 4.3x and weighted average debt maturity will be extended to 3.3 years post refinancing.
  • Post refinancing, the next tranche of borrowings that will be expiring will only be due in November 2021.

More than 30,000 sqm of space renewed and signed in 4Q20

  • Seven new leases have been signed and 15 leases have been renewed (4.6% of NLA).
    • Renewal leases saw a weighted average decrease of 4% in rentals.
    • Portfolio occupancy was maintained at 89.4%.
  • 20.2% of leases (by gross rents) are due to expire in FY21.
    • AIMS APAC REIT is confident of retaining a large portion of expiring leases.
    • Given that leases expiring were signed during the lows in FY17/18, renewals are expected to remain relatively flat or slightly negative at most.
  • Part of the CWT master lease will be expiring later this year.
    • In advanced negotiations to retain the underlying tenants directly once the CWT master lease expires.
  • King Plastic master lease will be expiring at the start of FY21; could consider converting into multi-tenancy leases or redevelopment.
  • Portfolio valuations declined marginally mainly due to a weaker AUD.
    • Cap rates remain relatively stable.
    • Impact of COVID-19 on valuations may only be felt at the next valuation in September 2020.

Suspension of non-critical capex

  • Amidst the COVID-19 pandemic, AIMS APAC REIT has been proactively looking at cutting property expenses.
  • Non-critical capex such as AEIs and redevelopments will be put on hold for now.
  • Long-term acquisition and AEI plans still remain on track, but currently more focused on managing COVID-19 disruptions.

Maintain BUY with a revised Target Price of S$1.40

Dale LAI DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-05-14
SGX Stock Analyst Report BUY MAINTAIN BUY 1.40 DOWN 1.500