AIMS APAC REIT - RHB Invest 2022-08-23: An Underappreciated Industrial REIT; Stay BUY


AIMS APAC REIT - An Underappreciated Industrial REIT; Stay BUY

  • AIMS APAC REIT (SGX:O5RU) remains an attractive proxy to the favourable Singapore industrial sector outlook, with a majority of its income derived from the attractive logistics sector and long leased Australian business parks.
  • AIMS APAC REIT is also minimally impacted by rising interest rates and utility charges. Its modest gearing offers room for opportunistic acquisitions.
  • AIMS APAC REIT's valuation is attractive at 1x P/B and 7% yield.

Operating metrics growing from strength to strength.

  • AIMS APAC REIT's 1QFY23 (1 Apr 2022 to 30 Jun 2022) portfolio occupancy stood at a new high of 97.9% (4QFY22: 97.6%) driven by strong demand for its Singapore logistics assets. 1QFY23 rent reversion was a healthy 9.5% (4QFY22 +14.5%) for the 10 new and 14 renewal leases (~4% of portfolio NLA) secured during the quarter.
  • Positive rent reversions are expected to continue, with ~70-80% of upcoming leases (until FY24) in the favourable logistics segment. In addition, its Australian portfolio, which is currently on long leases, has an annual rent escalation of ~3% per annum.

Minimally impacted by rising interest rates and utility costs.

  • Post recent refinancing of its S$140m debt, only a minimal S$31m (4% of total) of the debt is due for refinancing in FY24 (1 Apr 2023 to 31 Mar 2024) and none in FY23. Overall borrowing costs remains unchanged at 2.7% per annum for AIMS APAC REIT, with weighted average debt maturity of 3.8 years. About 88% of its loans are hedged (65% fixed, 23% via forward swaps), with every 50bps increase having a minimal ~1% DPU impact.
  • AIMS APAC REIT is also minimally impacted by rising utility costs compared to other industrial REITs as these have been modified to pass-through based on its current lease structures.
  • AIMS APAC REIT has hedged 68% of its FY23F AUD income via forward currency contracts, in addition to a high natural hedge (62%).

Open for acquisitions at the right price.

  • In July, AIMS APAC REIT announced that its option to purchase 315 Alexandra Road (announced Jan 2021) has lapsed. Management is still in discussion with the vendor – it noted that conditions have changed since last year (including occupancy and interest rates) and would consider a fresh bid at the right price.
  • Management guided that it is also starting to see a slight increase in capitalisation rates for assets it was previously looking at and remains watchful on potential opportunities with rising interest rates.
  • AIMS APAC REIT's gearing stands at 37%, presenting a potential S$100m of debt headroom for acquisitions (assuming a 40% level).

Sharpening its ESG focus.

Vijay Natarajan RHB Securities Research | https://www.rhbgroup.com/ 2022-08-23
SGX Stock Analyst Report BUY MAINTAIN BUY 1.660 SAME 1.660