AIMS APAC REIT - RHB Invest 2021-05-05: A Logistics Focused Industrial REIT

AIMS APAC REIT (SGX:O5RU)

AIMS APAC REIT - A Logistics Focused Industrial REIT

AIMS APAC REIT (SGX:O5RU) is an industrial focused REIT with an established track record of nearly 15 years since its listing as MacarthurCook Industrial REIT on the SGX-ST in 2007. Since listing, AIMS APAC REIT's portfolio has grown more than five-fold from S$316m to S$1.7bn as of 3QFY21 (Mar).

AIMS APAC REIT’s existing portfolio consists of 28 properties with a portfolio value of S$1.7bn. Singapore is its key focus market ( ~88% of assets by value), with 26 properties located strategically across various industrial clusters domestically. The REIT has two assets in Australia: one in Gold Coast, Queensland, and a 49% interest in one business park property – Optus Centre – at Macquarie Park, New South Wales.

AIMS APAC REIT derives half of its income from logistics assets, which emerged as key beneficiaries’ post COVID-19 disruption. The strong demand for such assets has boosted its portfolio occupancy by 6.3ppts year-to-date to 95.7%. Its two Australian assets offer stable long-term organic growth from long-term (12-year) master leases with inbuilt annual rent escalations.

One of AIMS APAC REIT's core strength is that – despite the relatively small size – it has an established record of extracting value from existing assets via redevelopment, built-to-suit developments, and asset enhancement initiatives (AEIs).
AIMS APAC REIT has so far embarked on nine such major initiatives, which has yielded an attractive ROI of 8-10% on its investment cost. There is potential untapped GFA of ~502,707sqf in its current portfolio, which we believe will be unlocked at an opportune time.

AIMS APAC REIT provided S$2.6m rental relief for eligible tenants in 1QFY21 under the Singapore Rental Relief framework. We do not anticipate further rent relief, given the strong pick-up in industrial activity since the fourth quarter of 2020.
We understand from management that rental collection rates have generally remained healthy last year, with no material delays due to COVID-19. There has also been no impact from the realigned framework, which allows for the renegotiation of rental contracts for businesses significantly impacted by the pandemic, with no notice received to date from AIMS APAC REIT’s tenants for such negotiations.

AIMS APAC REIT's WALE by rental income of the portfolio is 3.94 years (including forward committed leases) with no more than 24% of leases expiring in any single year. The REIT portfolio has a weighted average land lease expiry of 34.8 years (assuming freehold asset of 99 years), which we believe is manageable considering AIMS APAC REIT's good redevelopment and asset enhancement track record.

Expecting 9% jump in FY22F DPU. Key drivers of distributable income growth are the accretive contributions from two industrial asset acquisitions, uplift in portfolio occupancy, and absence of rental rebates. NPI margins are expected to stay relatively flat at ~70%. AIMS APAC REIT's FY21 DPU is forecasted to decline 7% y-o-y mainly due to the provision of S$2.6m rent rebates, conversion of master leases to multi tenancy and absence of one-off S$2.3m of property tax refund recognised in FY20. Our forecast assumes occupancy to stay flattish of around ~95% levels as well as positive rental growth of 1-3% and a 100%payout ratio.
Gearing to remain below 40%. AIMS APAC REIT's gearing as at 3QFY21 stands at 34.1%. Post proposed acquisition completion of 315 Alexandra Road – which will be fully funded by debt – gearing is expected to move to 39% (still well below the Monetary Authority of Singapore’s (MAS) threshold of 50%). Management noted that it intends to keep gearing at the ~40% level to buffer for uncertainties. Thus, future acquisitions are likely to be funded by a combination of equity and debt.
Distribution frequency. AIMS APAC REIT declares and distributes dividends to unitholders on a quarterly basis.

AIMS APAC REIT is an undervalued and overlooked industrial REIT with 28 high-quality industrial assets in Singapore and Australia. Key catalysts include DPU turnaround, investor appetite for logistics assets, and accretive acquisitions. Its P/BV – 1.0x (below its 5-year mean) is a highly unjustified – ~50% discount to industrial REIT peers.
AIMS APAC REIT has also been recently included in the FTSE Russell ST Singapore Shariah and MSCI Singapore Small Cap Indices.
See
AIMS APAC REIT is one of the Top Singapore Small Cap Companies highlighted in RHB's 20 Jewels 2021 Edition.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2021-05-05

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