A Slight Miss Vs Consensus and MKE; DPUs Lowered

• We revised estimates following AIMS APAC REIT (SGX:O5RU)'s 4Q19 DPU, which rose 4.6% y-o-y and 10.0% q-o-q on weaker-than-expected rentals, despite stable occupancies.
• We expect negative reversions to persist in the near term from the earlier 2014-17 supply surge. Accordingly, we cut AIMS APAC REIT's DPUs by 3-4% on slower rental growth assumptions. Despite this, DPU recovery is underway, supported by its first greenfield build-to-suit (BTS), while redevelopment growth optionality from its under-utilised GFA offers 4-5% potential upside.
• Despite revisions, we reiterate BUY as valuations are undemanding at 7.2% DPU yield and 13% total return to our revised DDM-based SGD1.50 Target Price (COE: 7.9%, LTG: 1.5%).

Stable Occupancy, Negative Reversions

• AIMS APAC REIT's 4Q19 revenue rose 6.7% y-o-y with the contribution from 51 Marsiling Road (from Apr 2018) and higher rental and occupancy at 8 Tuas Avenue 20, which offset the weaker performance of 20 Gul Way (six phases of its master leases were converted to multi-tenancy leases) and 27 Penjuru Lane, and divestment of 10 Soon Lee Road at end-Mar 2018.
• AIMS APAC REIT's portfolio occupancy was stable at 94.0% and above the 89.3% industrial sector average. AIMS APAC REIT continued to report negative rental reversion for its portfolio at -5.8% (from -24.6% in 3Q09 and -24.0% in 4Q18).
• Management signed 11 new and renewal leases (21,400 sqm or 3.4% of its total NLA) during the quarter and looks to backfill its leases, which contribute about 20-28% p.a. of expiries over FY20-22. AIMS APAC REIT’s exposure to CWT was 8.9% of its gross rental income in 4Q19, of which 5.2% is set to fall with the expiry of its lease agreements in FY20.

Two Projects on Track to Deliver in 2H 2019

• Its redevelopment work remains on schedule to turn 3 Tuas Ave 2 into a modern ramp-up facility with a 52% boost to GFA. We will factor in contributions from the asset when leasing details are available closer to its completion date.
• Meanwhile, its SGD13.0m AEI at the 29 Woodlands Industrial Park E1 (NorthTech) facility will strengthen its portfolio given long-term government-backed development plans for the area. Both projects are on track for completion in 2H 2019.

Sound Balance Sheet, Redevelopment Adds DPU Lever

• AIMS APAC REIT's aggregate leverage was stable at 33.7% and low relative to its peers. We see DPU growth levers arising from further asset rejuvenation opportunities, with 7% or 0.5m sf of its portfolio GFA underutilised. We estimate these redevelopment projects could boost AIMS APAC REIT's DPU by 4-5%.

Source: Maybank Kim Eng Research - 26 Apr 2019