AIMS APAC REIT - Maybank Kim Eng 2020-05-12: Redevelopment Play

AIMS APAC REIT (SGX:O5RU)

AIMS APAC REIT - Redevelopment Play

AIMS APAC REIT (SGX:O5RU)'s 4Q20 DPU was down 27.3% y-o-y and 20.0% q-o-q with a SGD2.9m capital retention, despite the operationally in-line results, and stable portfolio occupancy. AIMS APAC REIT executed well on leasing and AEI, whilst delivering ahead on its 3 Tuas Ave 2 redevelopment project.
We expect negative reversions to persist in the near term – from earlier market oversupply and unwinding of CWT’s final master leases.
AIMS APAC REIT's DPUs are well-supported by its tenancies and concentrated logistics AUM. Redevelopment growth optionality from its underutilised GFA continues to offer 4-5% potential upside risk and remains backed by its low 34.8% leverage.

We have kept forecasts mostly unchanged, while revising our DDM-based Target Price to SGD1.55 (COE: 7.8%, LTG: 1.5%). AIMS APAC REIT's valuations are undemanding at 8.5% DPU yield and 0.8x FY20E P/B.

AIMS APAC REIT's 4Q20 revenue dipped 5.7% y-o-y and 4.2% q-o-q with:
1. a conversion of its master lease at 1A IBP to multi-tenancies (in Nov 2019),
2. a full quarter impact on the final phase expiry of its master lease at 20 Gul Way in 3Q20, and
3. expiry of the second phase of the master lease at 30 Tuas West Road (in Feb 2020).
New and renewal leases (22 in total) were executed in 4Q20, comprising 4.6% of its total NLA. Rental reversion was at -4.0% (vs -1.9% in 3Q20), even as exposure to CWT has fallen to 3.6% of its overall gross rental income (from 4.8% in 3Q20, and 7.9% in 2Q20) as leases expired at 20 Gul Way.

AIMS APAC REIT's portfolio occupancy remained stable at 89.4%, supported by leases at 20 Gul Way and 1A IBP, as well as a maiden contribution from 3 Tuas Ave 2. The latter property gained from a 1.5x GFA boost (as plot ratio rose from 0.92x to 1.4x) post redevelopment. It was completed in Jan 2020 at a development cost 6.4% lower than its initial budget, and is backed by a 10-year master lease to a medical device MNC, embedded with 2-year rental escalations and a 20-year renewal option. We estimate a 7.7% NPI yield, above management’s 7.3% earlier guidance.
Meanwhile, NorthTech in Woodlands saw a 14.2% valuation uplift following the completion of AEI works in Jan 2020.
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/ 2020-05-12

SGX Stock Analyst Report BUY MAINTAIN BUY 1.55 DOWN 1.600