AIMS APAC REIT - RHB Invest 2021-10-13: A Good Quarter; Reiterate BUY


AIMS APAC REIT - A Good Quarter; Reiterate BUY

  • AIMS APAC REIT (SGX:O5RU) posted a strong 2Q DPU (+25% y-o-y), in line with our expectations.
  • Operating metrics were positive, with a healthy occupancy rate improvement coupled with positive rental reversions and an increase in asset value. Contributions from the Woolworth acquisition are expected to kick in this quarter, which should further boost DPU.
  • AIMS APAC REIT's valuation remains compelling, at 1x P/BV (sector average: 1.5x) and offering a ~7% FY22F (Mar) yield.

AIMS APAC REIT's 2Q21 DPU rose 25% y-o-y (1H +19%)

  • AIMS APAC REIT's 2Q DPU rose 25% y-o-y (1H +19%) mainly due to higher rental revenue from 20 Gul Way, 8 & 10 Pandan Crescent, and 541 Yishun Industrial Park A (on the back of occupancy rate improvements), and added contributions from 7 Bulim Street. The higher DPU came despite management fees being fully paid in cash (1QFY22: 50% in units).
  • Looking ahead, AIMS APAC REIT's management guided for a mix of units and cash for payment of management fees. Asset value ticked up by 1.3%, aided by a cap rate compression in Australia (~20bps) and occupancy improvements in Singapore.

A solid quarter, with improvements across the board.

  • AIMS APAC REIT's portfolio occupancy rate rose 1.6ppt to 97.3%, the highest level in three years, with improvements seen across all segments. The leasing momentum remains healthy, with 6.2% of portfolio leases signed in 2Q (46% new leases) at a positive rental reversion of 2.1%.
  • We expect rental reversions to stay positive (1-3%) for the remaining 13.8% of the leases due for FY22, which are spread across logistics and high-technology segments in Singapore.

Woolworth acquisition likely to be completed by November.

  • The proposed acquisition of the Woolworths headquarters in Sydney (AUD 463.3m) is expected to be completed by November. Post-acquisition, Woolworth will become its largest tenant (~16% of income) and will add stability to income from its long 10-year lease, with built-in rental rate escalation of 2.75% pa.
  • We also understand the vendor for 315 Alexandra Road (315 AR) is still in talks with JTC for approvals, and management remains hopeful that the deal can also be finalised by year-end.

Fundraising a possibility.

  • Assuming the completion of the above two acquisitions, and taking into account perpetual securities issued (treated as equity), AIMS APAC REIT’s net gearing is expected to come in at ~42%. While management noted that it is comfortable with these levels, we believe there is a possibility it raising S$50-100m in equity over the medium term.

No change to our earnings estimates.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2021-10-13
SGX Stock Analyst Report BUY MAINTAIN BUY 1.72 UP 1.550