• Maintain BUY, new SGD1.46 TP from SGD1.48 (15% upside), c.8% FY25F (Mar) yield. AIMS APAC REIT’s 2H/FY24 DPU fell short of our estimates on higher financing costs and management fees in cash. The key highlight continues to be its stellar portfolio rent reversions for logistics assets, which are expected to continue, albeit at a moderate pace (FY25F) with stable occupancy. Asset enhancement contributions should start to kick in later this year. AAREIT remains the best proxy for the Singapore logistics sector’s growth, coupled with stable long-term income from Australia.

• Strong rent reversions for 4Q/FY24 of 32%/24% were primarily driven by its Singapore logistics & warehouse portfolio which continues to benefit from strong market rent growth and its under-rented nature. For FY25, over half of its 18% of leases expiring are from logistics assets. Management guided that rental reversions will be in high single digits to low double digits. Portfolio occupancy dipped QoQ (-0.3ppts) but remains high at 97.8% due to temporary vacancy and is expected to be backfilled in the coming quarters.

• Ongoing redevelopment of two assets; ROI of 7-8% expected. AAREIT has secured a 15-year master lease with a storage and information management company and will be upgrading an existing warehouse to meet GreenMark Gold Plus certification. Leasing is expected to commence by 1QFY26. The second asset involves repositioning an industrial building. The REIT is in advanced negotiations with a global precision engineering and technology group for a new long-term lease for one-third of the building. The total cost of c.SGD32m for upgradation will be funded via last year’s fund raising.

• Low gearing provides buffer for potential redemption of perpetual securities (perps). AAREIT has two perps outstanding for a total of SGD375m, with the first reset date being Aug 2025 for SGD125m of the perps. With low gearing of 32.6%, AAREIT has some buffer to redeem the perps with debt if needed, while keeping gearing below 40%.

• FY24 DPU declined 6% YoY despite NPI growth of 7% YoY, mainly due to the larger unit base (from its SGD100m equity fund raising in 2QFY24) and higher financing costs. Valuation declined 1.3% YoY (SGD29m) as gains from its Singapore portfolio were more than offset by declines in Australian assets due to the cap rate expansion. Financing cost rose 10bps QoQ to 4.1%, and for FY25, we expect it to remain at low 4% levels.

• We lower FY25-26F DPU estimates by 2-3%, factoring in higher interest cost assumptions and pushing back contribution from asset enhancements. As AAREIT’s ESG score of 3.3 is above the country median, a 4% ESG premium has been embedded to our DDM-derived TP.

Source: RHB Research - 8 May 2024