Comprehensive Analysis of AIMS APAC REIT

Broker Name: Maybank Research Pte Ltd

Date of Report: November 8, 2024

Introduction

This report delves into the latest financial and operational updates for AIMS APAC REIT (AAREIT SP), covering all aspects from distribution per unit (DPU) growth to sustainability initiatives. Investors will find a thorough analysis of the company’s performance, key metrics, and future prospects.

Delivering Steady Growth

AIMS APAC REIT has demonstrated consistent growth with a 1H25 DPU of SGD 4.67 cents, marking a 0.4% increase year-on-year (YoY). Although this is marginally below our forecast, it aligns with consensus expectations. Key contributors to this growth include incremental revenues from electricity sales, lower commissions, and insurance compensations which offset leasing downtimes at two Asset Enhancement Initiative (AEI) assets. The revenue and net property income (NPI) for 1H25 stood at SGD 93.5 million and SGD 67.6 million respectively, reflecting a YoY growth of 7.7% and 5.1%.

Strong Reversions in 2QFY25

In 2QFY25, DPU increased to SGD 2.4 cents, a rise of 5.7% quarter-on-quarter (QoQ) and 2.6% YoY. This growth was driven by strong reversions, particularly in logistics (29.1%), industrial assets (19.0%), and business parks (2.3%). The overall occupancy rate slightly declined by 2.3 percentage points due to ongoing AEI and transient movements, but including committed leases, it remains robust at 96.7%.

Operational Updates

AAREIT secured a new anchor tenant for 15 Tai Seng Drive, which will start contributing revenue in 3QFY25 amid ongoing AEI works. The company is also in the process of renewing its contract with Schenker for another three years and partially sealing the re-leasing of DHL’s space with positive rental reversions.

Financial Health and Balance Sheet

With a healthy gearing ratio of 33.4%, AAREIT’s management expects the cost of debt (COD) to remain around the current level of 4.4%. The company recently secured a sustainability-linked loan facility up to SGD 400 million and AUD 150 million, which offers potential margin reductions upon meeting specific criteria. Part of this loan will refinance the SGD 100 million medium-term notes (MTN) maturing this month.

Additional Income from Solar Panels

In 1H25, revenue from the sale of electricity and renewable energy certificates increased to SGD 1.872 million. Management anticipates valuation upside for its Australian portfolio, supported by ongoing infrastructure upgrades. AAREIT also raised SGD 100 million through equity fund raising (EFR) in June 2023, with SGD 32 million allocated to AEI projects at 7 Clementi Loop and 15 Tai Seng Drive.

Future Acquisition Strategies

AAREIT remains focused on acquiring industrial and logistics assets in Singapore and Australia, targeting properties with value-add potential. This strategy aligns with the company’s long-term growth objectives and portfolio diversification efforts.

Share Price and Market Performance

The share price of AAREIT stands at SGD 1.28, with a 12-month price target of SGD 1.39, indicating a potential upside of 16%. The company’s 52-week high and low are SGD 1.36 and SGD 1.21, respectively. Major shareholders include ESR Group Ltd., Wang George /AIMS/, and The Vanguard Group, Inc., collectively holding significant stakes.

Financial Metrics and Forecasts

For FY23A, FY24A, and projections for FY25E, FY26E, and FY27E, AAREIT’s financial metrics indicate stable growth. Revenue is expected to increase from SGD 167 million in FY23A to SGD 191 million in FY27E, while net property income is projected to rise from SGD 123 million to SGD 141 million over the same period. Core net profit and DPU are also forecasted to see incremental growth, reflecting the company’s robust financial health.

Environmental, Social, and Governance (ESG) Initiatives

AAREIT is committed to sustainability, with nearly half of its Singapore portfolio being BCA Green Mark compliant. Key environmental initiatives include securing a BCA Green Mark (Gold) award for the 3 Tuas Avenue 2 redevelopment and achieving PUB Water Efficient Buildings certification for 10 Changi South Lane. The company has also implemented solar partnerships and energy-efficient upgrades across select properties.

Governance and Social Responsibility

Governance is a critical focus, with three out of five board members being independent. The management fee structure is competitive, and the company maintains a high payout ratio for taxable income, consistently above the 90% threshold for tax transparency. Social initiatives include achieving a high level of gender diversity, with women constituting 57% of the workforce and 43% of management roles.

Conclusion

AIMS APAC REIT continues to demonstrate steady growth and strong financial health. With ongoing AEI projects, strategic acquisitions, and a commitment to sustainability, the company is well-positioned for future success. Investors can expect stable returns supported by robust operational performance and proactive management strategies.