AIMS AMP Capital Industrial REIT's (AIMS) 3QFY17 results were on par with expectations, even though DPU slipped 2.8% to 2.77¢. This brought 9MFY17 DPU to 8.27¢ or 75% of full-year consensus estimate.
For the quarter, distributable income fell 2.3% to $17.7m on weaker revenue of $30.4m (-6.7%) and NPI of $19.8m (-6%), but the impact was negated by a 12.1% drop in borrowing cost post-refinancing of a $100m medium-term note in Aug '16.
The decline in top line was attributable to lower rental at 27 Penjuru Lane, 8 & 10 Pandan Crescent, as well as temporary income loss from the redevelopment of 8 & 10 Tuas Avenue 20.
Portfolio occupancy improved 1.3ppt q/q to 94%, higher then industry average of 89.5%, with weighted-average-lease-to-expiry of 2.49 years (2QFY17: 2.6 years).
Aggregate leverage ticked up by 0.6ppt q/q to 34.6%, while average debt cost was reduced by 0.2ppt q/q to 3.7% and tenor shortened to 2.1 years (2QFY17: 2.4 years).
Interest rate risks are largely managed as 84% of total debt are hedged to fixed rates. Nonetheless, the industrial landlord estimates that every 25 bps increase in interest rate would impact DPS by $0.03.
Management is generally cautious on its outlook due to risk factors arising from spillover effects on global trade from Trump's protectionist stance, potential slowdown in China, and oversupply of industrial space in Singapore.
On a brighter note, AIMS has received TOP for its recently conversion of 30 Tuas West Road from a three-storey industrial building into a five-storey ramp-up warehouse. The property is fully-leased to CWT at an annual rental income of $4.15m, and will offer partial contribution in 4QFY17 with full-quarter impact from 1QFY18.
AIMS currently offers a annualised 3Q distribution yield of 8%, in line with industrial sub-sector average, and trades at 0.93x P/B.
The street has 3 Buy ratings with a consensus TP of $1.63 on the industrial REIT.