AIMS AMP Capital Industrial REIT (AA-REIT Singapore) announced 2QFY18 results
From MACQUARIE RESEARCH:
Conclusion
·We hosted AIMS AMP Capital Industrial REIT’s (AAREITs，CEO and team at Tiffin lunch series after the group announced 2QFY18 results. Investors were focused on the impact on rents from the current soft market conditions in the industrial sector as well as leasing progress and conversion from master lease to multi-tenancies at its key assets.
Impact
·2QFY18 result highlights. AAREIT reported distribution income of S$16.3m, DPU of 2.55cts (-7.3% YoY; +2.0% QoQ), which was slightly below our expectation. This was largely due to lower rents and recoveries from 20 Gul Way (its largest asset) as four phases reverted to multi-tenancy leases. Optus Centre (49% stake) contribution was +2.2% YoY due to the stronger AUD. Net asset revaluation losses of S$14.8m reflect independent property valuers’ cautious view of the near-term outlook. Adjusted NAV -2.1% QoQ as a result to S$1.36, implying 1.08x PBV.
·Challenging environment in short term. The leasing market remains difficult, with supply outstripping demand. AAREIT saw negative rent reversions of -21.1% for renewal leases with the same tenant. The outlook is better as 8 Tuas Ave 20 was recently completed on 29 Aug and secured a tenant for a 10-year lease with rent escalations. This asset is currently 43.4% occupied. A greenfield project at 51 Marsiling Road will be completed in 3QFY18 which is already master leased to Beyonics for 10 years, also with rent escalations. Contribution from this property will be in FY03/19 after the fitting out period.
·Asset and leasing management focus. The group will focus on lease management to maintain above-market average occupancy rates. Longer term, there is still untapped GFA over 9 properties in the portfolio which could add circa 11% to total GFA. One of these properties, 3 Tuas Ave 2 is currently vacant. AAREIT will try to rent it out on a short-term basis before considering redevelopment options.
·Gearing at 37.3% with weighted average debt maturity extended to 2.3 years post recent refinancing. About 81.4% of debt is fixed and all-in blended funding cost unchanged QoQ at 3.60%.
Earnings and target price revision
·We lower our FY18-20 DPU by 6.4-4.8% to reflect the weak leasing market in the near term. Accordingly, our TP is trimmed to S$1.54 from $1.55.
Price catalyst
·12-month price target: S$1.54 based on a DCF methodology.
·Catalyst: Higher occupancy at 8 Tuas Ave 20; completion of 51 Marsiling Rd.
Action and recommendation
We expect DPU to dip in FY18 but to resume growth from FY19 onwards, on better occupancy at 8 Tuas Ave 20 and contribution from 51 Marsiling Road. Outperform maintained.
From MACQUARIE RESEARCH:
Conclusion
·We hosted AIMS AMP Capital Industrial REIT’s (AAREITs，CEO and team at Tiffin lunch series after the group announced 2QFY18 results. Investors were focused on the impact on rents from the current soft market conditions in the industrial sector as well as leasing progress and conversion from master lease to multi-tenancies at its key assets.
Impact
·2QFY18 result highlights. AAREIT reported distribution income of S$16.3m, DPU of 2.55cts (-7.3% YoY; +2.0% QoQ), which was slightly below our expectation. This was largely due to lower rents and recoveries from 20 Gul Way (its largest asset) as four phases reverted to multi-tenancy leases. Optus Centre (49% stake) contribution was +2.2% YoY due to the stronger AUD. Net asset revaluation losses of S$14.8m reflect independent property valuers’ cautious view of the near-term outlook. Adjusted NAV -2.1% QoQ as a result to S$1.36, implying 1.08x PBV.
·Challenging environment in short term. The leasing market remains difficult, with supply outstripping demand. AAREIT saw negative rent reversions of -21.1% for renewal leases with the same tenant. The outlook is better as 8 Tuas Ave 20 was recently completed on 29 Aug and secured a tenant for a 10-year lease with rent escalations. This asset is currently 43.4% occupied. A greenfield project at 51 Marsiling Road will be completed in 3QFY18 which is already master leased to Beyonics for 10 years, also with rent escalations. Contribution from this property will be in FY03/19 after the fitting out period.
·Asset and leasing management focus. The group will focus on lease management to maintain above-market average occupancy rates. Longer term, there is still untapped GFA over 9 properties in the portfolio which could add circa 11% to total GFA. One of these properties, 3 Tuas Ave 2 is currently vacant. AAREIT will try to rent it out on a short-term basis before considering redevelopment options.
·Gearing at 37.3% with weighted average debt maturity extended to 2.3 years post recent refinancing. About 81.4% of debt is fixed and all-in blended funding cost unchanged QoQ at 3.60%.
Earnings and target price revision
·We lower our FY18-20 DPU by 6.4-4.8% to reflect the weak leasing market in the near term. Accordingly, our TP is trimmed to S$1.54 from $1.55.
Price catalyst
·12-month price target: S$1.54 based on a DCF methodology.
·Catalyst: Higher occupancy at 8 Tuas Ave 20; completion of 51 Marsiling Rd.
Action and recommendation
We expect DPU to dip in FY18 but to resume growth from FY19 onwards, on better occupancy at 8 Tuas Ave 20 and contribution from 51 Marsiling Road. Outperform maintained.
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