AIMS APAC REIT - Illuminated By Master Lease Extension
- AIMS APAC REIT (SGX:O5RU) reported a FY22 DPU of 9.46 cents, a 5.7% increase y-o-y. This came on the back of better performance at 20 Gul Way, 8 & 10 Pandan Crescent, 29 Woodlands Industrial Park, and 541 Yishun Industrial Park A.
- When comparing the 2H22 DPU of 4.71 cents on a y-o-y basis, it declined 4.8%. This was mainly due to the enlarged perpetual securities base following the S$250m issuance on 1 September 2021. Currently, perpetual securities on the balance sheet amount to ~S$373.5m, and it makes up ~27.2% of AIMS APAC REIT’s total unitholders’ equity.
- In its FY22 portfolio revaluations exercise, AIMS APAC REIT portfolio was valued at S$2.2bn, a ~31.5% increase.
- We note that AIMS APAC REIT’s lease structures with tenants allow for utility costs to be largely passed on to tenants. As such, we believe that recent spikes in electricity will have very limited impact on AIMS APAC REIT.
- In FY23, only 14.4% of AIMS APAC REIT's leases (by GRI) are due to expire.
- The proposed acquisition of 315 Alexandra Road has been further delayed to 8 June 2022, pending regulatory approvals. Fully funding the acquisition of 315 Alexandra Road would bring AIMS APAC REIT’s gearing to slightly above 40%. Adopting a more conservative approach, we have assumed that the acquisition will be equally funded by debt and equity.
- We were positively surprised with the strong showing by AIMS APAC REIT in FY22, as they rode on the strong rebound from the depths of the COVID-19 pandemic. In addition to the improved performance at several properties and the inclusion of Woolworths HQ, part of the company’s outperformace in FY22 was also attributed to the gains from financial derivatives.
- More importantly, AIMS APAC REIT reported a very strong positive rental reversion of 14.7% in 4Q22. With 14.4% of the lease expiries in FY23 well spread out across its portfolio, we believe there is potential for further positive rental reversions in the year.
- Moreover, annual rental escalations of between 2.75% to 3.25% for leases in Australia will support organic growth. Coupled with the full-year contribution from Woolworths HQ and the assumed acquisition of 315 Alexandra Road by 2Q23, we project a ~1.0% growth in DPU y-o-y.
- However, we have taken a conservative approach in projecting our financing cost assumptions going forward, given the rising interest rates. Although AIMS APAC REIT reported a marginal improvement in financing costs and an increase in the hedging of its interest rates to fixed rates (92% of debt), we prefer to remain conservative. As such, we have assumed a 30bps increase in AIMS APAC REIT’s all-in cost of financing over the next two years and have revised our risk-free rate assumptions to 3.0% in our DCF valuation.
- We will be maintaining our BUY recommendation with a slightly lower target price of S$1.55 for AIMS APAC REIT based on a higher risk-free rate assumption.
Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.
Dale LAI DBS Group Research | Derek TAN DBS Research | https://www.dbs.com/insightsdirect/ 2022-04-28 2022-04-28
Read also DBS's most recent report:
2022-10-27 AIMS APAC REIT - Portfolio Valuations Supported By Strong Underlying Rents.
Previous report by DBS:
2022-07-27 AIMS APAC REIT - Fundamentals Remain Strong.