Adjusting Estimates, NPI Recovery Underway

• We adjust estimates for the 7 Bulim Street acquisition, slightly accretive at 7.07% NPI yield. Leasing activity remains steady in 2Q21, as vacancies fell further from 6.4% to 5.5%.
• With the bulk of its 11.8% of leases expiring in the year concentrated at its warehouse and logistics assets, we expect an improvement in rents to support NPI recovery in FY22.
• AIMS APAC REIT (SGX:O5RU)'s balance sheet remains strong at low 33.6% leverage, with valuations undemanding at 7.4% DPU yield, 0.9x FY21E P/B. Our DPUs stay mostly intact, as does our DDM-based target price (COE: 7.6%, LTG: 1.5%).

2Q21 in Line Helped by Redevelopments, Australia

• AIMS APAC REIT's 2Q21 revenue and NPI was at -0.3% y-o-y and 5.2% y-o-y, with contributions lower in Singapore, due to unwinding of its master leases at 1A IBP and 541 Yishun Industrial Park A, which were partly offset by the recently completed property at 3 Tuas Avenue 2, and Boardriders in Brisbane that was acquired on 15 Jul 2019.
• With recognition of rent relief lower by SGD3.3m and higher recoveries from its assets at 3 Tuas Avenue 2 and NorthTech, revenue and NPI rose 11.9% q-o-q and 14.5% q-o-q.

Occupancy Rises Further, Rents Stabilised

• AIMS APAC REIT's portfolio occupancy improved further from 93.6% to 94.5% as of end-Sep 2020, with leases secured at 8 & 10 Pandan Crescent and 15 Tai Seng. It executed 22 leases at ~38.1k sqm in 2Q21 or 5.7% of its NLA, pushing its 1H21 activity up 2.9% h-o-h, 45.6% y-o-y.
• Vacancies are tight; management expects occupancies could vary q-o-q due to differences in the timing of expiring and new leases. Rental reversion was better at -0.8%, vs -9.0% in 1Q21, and mainly attributed to its logistics and warehouse properties, where rents have likely bottomed out and in our view, set for recovery.

7 Bulim St Deal Slightly Accretive at 7.07% NPI Yield

• AIMS APAC REIT's SGD129.6m 7 Bulim Street acquisition, backed by a SGD125.0m, 5.65% perps issuance, was completed in Oct. The 68,190 sqm ramp-up facility within the Jurong Innovation District is fully-leased to Kintetsu World Express with a 5-year renewal option from Jun 2023. The asset adds 8% to its AUM and lifts AIMS APAC REIT's warehouse/logistics contribution from 46.4% to 51.1%, with a higher 36.4% of master leases to its gross rental income (from 30.3%) supporting DPU visibility.

Source: Maybank Kim Eng Research - 27 Oct 2020