NDR Highlights: 3Q20, Rental Growth, Acquisitions

• We hosted an NDR for AIMS APAC REIT (SGX:O5RU) in Singapore. Key highlights include:
  1. discussions on its 3Q20 operational performance;
  2. rental recovery supported by easing logistics supply, and
  3. acquisition growth profile.
• DPU recovery remains on track in our view, with upside from acquisition growth and redevelopment optionality from its under-utilised GFA.
• We have kept estimates unchanged, and see valuations as undemanding at 7+% DPU yield and 19% total return to our DDM-based target price of SGD1.60. Buy.

3Q20 Operational Performance – in Line

• AIMS APAC REIT's 3Q20 revenue dipped 3.7% y-o-y and portfolio occupancy declined q-o-q from 92.2% to 89.4%, mainly due to the conversion of its master leases at 1A IBP and 20 Gul Way. Rents have stabilised in line with the market, and reversion was at -0.9% versus +1.2% in 2Q20 and -24.6% a year ago.
• An extension of its master lease at Optus Centre in Australia on a 12-year master lease at 3.25% pa (from Jul 2021 following an AEI) has resulted in a 20% uplift in valuation for the property. Its exposure to CWT has fallen further to 4.8% of its overall gross rental income (from 7.9% in 2Q20) as leases expired at 20 Gul Way.

SG Supply to Slow, Rents to Stabilise

• Supply for logistics properties in Singapore will slow to 1.0% pa over 2020-23, from 6-7% in 2014-18. This should support a recovery in occupancy and rentals. AIMS APAC REIT's assets command a weighted average land lease expiry of 37.2 years (as of end-Dec 2019), versus a 30-year land lease on new industrial land sites, and with about 0.5m sf in untapped GFA from its underutilised portfolio.

Acquisition Growth Profile Unchanged

• Management continues to eye potential acquisitions in Singapore and Australia with the latter for its freehold quality and longer WALEs. Deals sized at SGD50-100m are in a sweet spot, and similar to the recent Boardriders APAC HQ in Queensland for AUD38.5m (SGD36.9m) at a 7.8% headline yield on 12-year initial lease term and +3.0% pa rental escalations.
• AIMS APAC REIT's low 35.2% leverage and an estimated SGD350m in debt headroom (at 45% leverage limit) should support further deals.

Source: Maybank Kim Eng Research - 31 Jan 2020