• Keep BUY and SGD1.46 TP, 10% upside and c.7% FY25F (Mar) yield. AIMS APAC REIT has been delivering a steady set of results with healthy organic income growth underpinned by Singapore logistics portfolio. While portfolio rent growth is expected to ease in the coming quarters, rent reversions are expected to remain in the mid- to high-single digits. Upside from asset enhancements will kick in from FY26F while its modest gearing presents room for inorganic growth. AAREIT remains one of our preferred mid-cap industrial REIT picks.

• Secured long master leases for its asset enhancement projects. AAREIT is currently upgrading 7 Clementi Loop – from an old warehouse to a more modern and sustainable logistics facility. It has secured a new 15-year master lease at higher rental and the tenant will be taking over the asset post asset enhancement initiative (AEI) in 1QFY26. Similarly, its 15 Tai Seng Drive is being repositioned to a hi-tech facility and the REIT has signed a 10-year lease with Accuron Technologies which will commence from 3QFY25. The projected ROI for the AEI is expected to be >7%.

• Perps refinancing concern mitigated with possible upside. An earlier market concern on the REIT has been on the potential higher cost of refinancing/replacing two of its outstanding SGD375m perpetual securities (perps). Its SGD125m perps with a coupon of 5.65% pa will be due for a rate reset in Aug 2025. We believe with a thawing debt market and rate cut outlook, it could be potentially replaced at a similar cost or cheaper. Another SGD250m perp with 5.375% coupon pa is due for reset in Sep 2026, and we see a likelihood of this being replaced at a lower coupon.

• Modest gearing of 33.1% presents room for acquisitions with AAREIT guiding Singapore and Australia as its potential target markets. It has a SGD100m medium-term notes with a fixed rate of 3.6% pa maturing in Nov 2024 for which its currently in refinancing discussions and we believe interest cost will likely to peak at around 4.5% levels by end-2024. c.74% of its debt hedged with a fixed debt tenure of ~1.5 years.

• Positive mid- to high-single digit rent reversions expected in FY25F, easing from +24% rent reversion in FY24. DHL one of its Top-10 tenant (2.3% of income) whose leases are due for renewal (balance lease term of 0.8 years as at 1QFY25) is expected to vacate. Management plans to cut the space into three portions, with one-third currently in advanced negotiations, another one-third in discussion, with the balance available only by 2025.

• No changes to estimates. AAREIT’s FY24 sustainability report shows progress in its portfolio greening efforts via the installation of solar power panels and building upgradations. Its ESG score of 3.3 (out of 4.0), two notches above the country median, results in a 4% ESG premium to our TP.

Source: RHB Research - 9 Sep 2024