AIMS APAC REIT - DBS Research 2020-07-24: Pockets Of Optimism


AIMS APAC REIT - Pockets Of Optimism

  • Healthy portfolio occupancy of 93.6%; a 4.2% increase q-o-q.
  • S$2.6m of provisions made for rental waivers; distribution of retained earnings to partially offset decline in AIMS APAC REIT's 1QFY21 earnings.
  • Logistics and warehouse properties are still seeing healthy demand.

AIMS APAC REIT's 1QFY21 earnings was slightly below our forecasts.

  • AIMS APAC REIT (SGX:O5RU)’s 1QFY21 (Apr 2020 to Jun 2020) earnings was slightly below our forecasts as King Plastic did not renew its master-lease at 451 Yishun Industrial Park A in April 2020. As the property is currently vacant, we have revised our forecast to assume no income contribution from the property for six months.
  • We have adjusted our FY21 DPU forecast to 9.1 Scts to take into account the decline in revenues as well as the S$2.6m provisions for rental waiver in 1QFY21.
  • Despite this, we believe the strong increase in occupancy of 4.2% q-o-q will help mitigate the impact over the rest of FY21. As such, we have maintained our Target Price of S$1.40 with a BUY call.

AIMS APAC REIT's 1QFY21 Operating highlights – Stable DPU of 2.00 Scts supported by distribution of retained income

  • AIMS APAC REIT's gross revenue of S$27.2m in 1QFY21 was S$1.0m lower q-o-q.
    • S$2.6m provisions made for rental waivers to SME tenants.
    • Expiry of master lease at 541 Yishun Industrial Park A.
  • NPI of S$18.6m was S$1.9m lower q-o-q as a result of lower revenue and higher operating expenses.
  • AIMS APAC REIT's DPU of 2.00 Scts in 1QFY21 remains unchanged q-o-q.
    • Includes S$2.6m provisions made this quarter.
    • c.S$2.0m of retained income (from 4Q20) has been utilised this quarter to offset provisions made.
  • Share of profits from Optus Centre in Australia was S$3.3m in 1QFY21, a 23.3% decline.
    • 4Q20 share of profits includes a revaluation surplus of S$1.2m.
    • Excluding the revaluation surplus last quarter, share of profits would have been c.6% higher q-o-q.

Capital management – All debt maturing in FY21 have already been secured

  • AIMS APAC REIT's aggregate leverage inched up to 35.4% due mainly to higher AUD debt.
  • All-in borrowing costs improved by 0.2% to 3.3% in 1QFY21.
  • Refinancing of all borrowings due to mature in FY21 have been fully secured.
    • S$100m and A$60m maturing in August 2020 and November 2020 respectively.
    • Weighted average debt maturity will be extended to 3.1 years once refinancing is completed.
  • S$184m in undrawn debt facilities available.

Portfolio metrics – Portfolio occupancy increased by more than 4%

  • AIMS APAC REIT's portfolio occupancy increased 4.2% q-o-q to 93.6%.
    • Due mainly to higher occupancies at 20 Gul Way and 27 Penjuru Lane.
    • Partially offset by the master tenant vacating 541 Yishun Industrial Park A.
  • Negative rental reversion of 9.0% for renewal leases in 1Q20.
    • Demand and rental rates for warehouses and logistics facilities remain strong.
    • Some pressures felt at general industrial and light industrial properties.
  • 16.2% of leases remains to be renewed in FY21, c.11% of the expiries are in the warehouse and logistics properties.
  • 3 Tuas Avenue 2 has been fully leased to Resmed Asia Pte Ltd.
    • Resmed is a manufacturer of medical and dental supplies.
    • Resmed is the fifth largest tenant contributing 3.7% of AIMS APAC REIT’s gross rental income.
  • C&P Logistics is now a top 10 tenant in AIMS APAC REIT’s portfolio.
    • Increased its space at 20 Gul Way.
  • 541 Yishun Industrial Park A was vacated by its master tenant in April 2020.
    • AIMS APAC REIT intends to lease out the property as a multi-tenanted asset in the short term. AIMS APAC REIT is in talks with several tenants to take up space.
    • Will only redevelop the property to tap on unutilised GFA if AIMS APAC REIT is able to secure pre-commitment for the asset. Will also consider divesting the asset if the right offer comes
    • We have assumed a 6-month vacancy for the property
  • AIMS APAC REIT will focus on occupancy rates and lease renewals for FY21.
    • AEIs and redevelopments will be put on hold unless pre-commitments are secured.

Our recommendation

We continue to like AIMS APAC REIT for its relatively resilient portfolio.

  • Despite the non-renewal of the master lease at 541 Yishun Industrial Park A, the strong take-up rates at its other warehouses and logistics buildings have led to the increase in portfolio occupancy. With a majority 16.2% of leases expiring in FY21 coming from the warehouse and logistics properties, we believe that this segment will support healthy portfolio occupancy and rental reversions going forward.
  • Given AIMS APAC REIT’s relatively low gearing of 35.4%, the debt headroom of c.S$464m gives it the flexibility to carry out AEIs or redevelopment projects to tap on the more than 500,000 sqft of unutilised GFA. Looking ahead, we will be closely monitoring the occupancy at 541 Yishun Industrial Park A and/or any redevelopment or divestment plans.
  • Having already made S$2.6m in provisions for rental rebates in 1QFY21, we believe there is no need for further provisions going forward. Moreover, with the remaining c.S$1m of retained income at its disposal, we believe that there is sufficient buffer in place to support DPU for the rest of FY21, and any unutilised retained income and provisions will be distributed during the year.
  • Despite adjusting our FY21 DPU forecast to take into account the dip in income contribution from 451 Yishun Industrial Park A, our valuation assumes improved contributions from properties with higher occupancies and the distribution of c.S$1.0m unutilised retained earnings.
  • AIMS APAC REIT (SGX:O5RU); 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.
  • Our Target Price of S$1.40 implies a 15% upside to share price, thus we have maintained our BUY recommendation for AIMS APAC REIT.

Dale LAI DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-07-24
SGX Stock Analyst Report BUY MAINTAIN BUY 1.400 SAME 1.400