• 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

• AIMS APAC REIT is currently conducting a carbon baseline study and re-evaluating its long-term energy targets, while also proposing the adoption of renewable energy usage via installation of solar panels. Its ESG score of 3.2 out of 4.0 (based on our proprietary methodology) is two notches above our country median, and thus, we have pegged a 4% ESG premium.

• Keep BUY recommendation on AIMS APAC REIT with S$1.66 target price, 20% upside.

Source: RHB Invest Research - 23 Aug 2022