AIMS APAC REIT - DBS Research 2020-08-12: Jumping Onto The Industry 4.0 Bandwagon


AIMS APAC REIT - Jumping Onto The Industry 4.0 Bandwagon

  • DPU-accretive acquisition of a modern logistics facility in the emerging Jurong Innovation District.
  • Slight decline in DPU due to timing difference but c.1.8% accretion from FY22F.
  • Maiden perpetual securities issuance secured at a competitive rate of 5.65%.

The proposed acquisition – 7 Bulim Street

  • AIMS APAC REIT (SGX:O5RU) announced the proposed acquisition of a modern ramp-up logistics facility at 7 Bulim Street. The acquisition will be funded by the S$125m perpetual securities issuance and additional debt of S$12m. The acquisition will be DPU accretive but the difference in timing between the perps issuance and completion of acquisition will lead to a c.1.5% negative carry to FY20F DPU projections. However, the acquisition will be c.1.8% accretive to DPUs from FY21F onwards.
  • Purchase consideration of S$129.6m; total acquisition cost of S$135.5m; NPI Yield of 6.76% (based on total acquisition cost).
  • Master leased to KWE (subsidiary of major Japanese logistics group) for 10 years which commenced in 2014; 3.5 years of master lease remaining. Land tenure of approximately 22 years remaining.
  • One of the only few modern logistics facilities in the area; property will benefit from robust demand and healthy rental rates in the precinct.
  • Jurong Innovation District at the forefront of Singapore’s push for Industry 4.0 and 7 Bulim Street is well-positioned to capture favourable demand dynamics from manufacturers and modern logistics service providers.

Modern logistics facility – NPI and DPU accretive

  • 7 Bulim Street is strategically located in the Jurong Innovation District, within close proximity to the future Tuas Mega Port and PSA ports.
  • Modern 4-storey ramp-up logistics facility that is well-served by major expressways.
  • Proposed acquisition will increase AIMS APAC REIT’s Logistics and Warehouse exposure from 46.4% to 51.1%.
  • Portfolio occupancy will increase from 93.6% to 94.2%.
  • Master leases will account for 36.4% of all leases, adding income visibility and stability.
  • Proposed acquisition will be funded by S$125m perps (5.65% coupons) and additional debt of S$12m.
  • NPI yield (based on total acquisition cost) of 6.76% will be c.1.9% accretive to DPU.
  • Well-located in the Jurong Innovation District that is slated to be a work and play cluster that will house advanced manufacturing campuses, and district-level infrastructure and services.
  • First phase of the government’s plan to develop the Jurong West area is due to complete by 2022.

Maiden issuance of perps – Competitively priced

  • Issue size of S$125m at a 5.65% annual coupon rate.
  • First reset date on 14 August 2025.
  • Reference rate based on SOR + 5.207%.
  • Margins relatively higher than perps of other REITs, but income spread of proposed acquisition will be locked-in with the fixed funding of the perps.
  • Healthy NPI yield of proposed acquisition guarantees DPU accretion.
  • Perps issuance has also reduced AIMS APAC REIT’s gearing by 2.0ppts to 32.8% and increased its debt headroom to more than S$580m.

Our view

  • We remain positive on AIMS APAC REIT’s prospects especially with the accretion from this acquisition. While the master lease has only 3.5 years left to run, we do see visibility and good demand given the tenants ability to renew for another 5 years. The location is also an emerging logistics park which we expect to see resilient demand over time. 7 Bulim Street is a modern ramp-up logistics facility well-located in the Jurong Innovation District that is in close proximity to the upcoming Tuas Mega Port.
  • Despite the issuance of the 5.65% perps at a relatively high margin, the attractive NPI yield of 6.76% of 7 Bulim Street will translate into a DPU accretion of c.1.9%. Given that there has been no other perps issuance by S-REITs in recent years, we are encouraged by the overall pricing AIMS APAC REIT was able to achieve. Moreover, the coupon rate of the perps is in line with those of other mid-cap industrial REITs and it will also lower AIMS APAC REIT’s gearing to c.32.8%.
  • Due to the timing difference of the issuance of the perps (August 2020) and the expected completion of the acquisition (October/November 2020), it will lead to some negative carry in FY21F. Beyond FY21, the proposed acquisition will create DPU accretion of c.1.8%. As such, DPU is expected to see a slight decline in FY21F, before rebounding by c.9% in FY22F.
  • See AIMS APAC REIT Share PriceAIMS APAC REIT Target PriceAIMS APAC REIT Analyst ReportsAIMS APAC REIT Dividend HistoryAIMS APAC REIT AnnouncementsAIMS APAC REIT Latest News
  • We currently have a BUY call on AIMS APAC REIT with a Target Price of S$1.40. Based on current share price, our Target Price and DPU projections imply a 18% upside to share price and a forward yield of 7.6%.

Dale LAI DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-08-12
SGX Stock Analyst Report BUY MAINTAIN BUY 1.400 SAME 1.400