On 7 May 2024, AIMS APAC REIT (“AA REIT”) have announced their full year result for 2024. The financial position for AA REIT remains relatively stable, although the overall DPU still decrease due to the Private Placement and Preferential Offering. Given that this event happened in the first quarter of FY2024, we may see the metric improve over the next few quarters as the comparative may have a lower base.
Website: Financial Statements And Related Announcement::Full Yearly Results
Photo source: https://www.aimsapacreit.com/
Background
AA REIT is a real estate investment trust listed on the Mainboard of the Singapore Exchange Securities Trading Limited. Their investment mandate is to invest in high quality income-producing industrial real estate throughout Asia Pacific, including warehousing and distribution activities, business park activities and manufacturing activities. The Trust’s portfolio consists of business parks and industrial properties.
The Trust is managed by AIMS AMP Capital Industrial REIT Management Limited.
Key Metrics
Distribution Per Unit (“DPU”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | -5.9% | -4.1% |
DPU decreased by 5.9% to SGD0.0936 from SGD0.0994 in the previous financial year. Similar to the previous quarter, the main reason for the decrease was due to an enlarged unit base following the Equity Fund Raising (“EFR”) launched on 31 May 2023 where 57,660,000 units were issued on 12 June 2023 in relation to the Private Placement and 25,376,361 units were issued on 3 July 2023 in relation to the Preferential Offering. Distributions to unitholders in total increased by 11.8%. This metric is Unfavorable.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 97.8% | 98.1% |
Occupancy rate as of 31 March 2024 decreased slightly to 97.8%. This is still Favorable as it is above my expected healthy occupancy rate of 95% and AA REIT have been able to fully utilize their assets.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 32.6% | 32.2% |
Gearing ratio increased slightly to 32.6% as of 31 March 2024. This metric remains unchanged as Favorable as there is more than sufficient headroom from the MAS limit of 50% to fund new acquisitions through debt.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 2.4x | 2.3x |
The adjusted interest coverage, which includes the amount reserved for distribution to Perpetual Securities holders, for the trailing 12 months stands at 2.4 times. The overall metric is Unfavorable as the interest coverage is lower than my preference of 3.0 times and may worsen. The Federal Reserve on 2 May 2024 has signalled that US borrowing costs are likely to remain higher for longer, as it wrestles with persistent inflation across the world’s biggest economy. This was after increasing the interest rates to a range between 5.25% and 5.50% on 26 July 2023.
Website: Federal Reserve chair Jay Powell signals interest rates will remain higher for longer
The sensitivity analysis using the information as of 31 March 2024 is as below:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $691,000 |
| Debt Not Hedged (%) | 25.0% |
| Debt at Floating Rate Exposed | $172,750 |
| Distributions to Unit Holders FY2024 | $74,321 |
Interest rate sensitivity analysis as below:
| Change in Interest Rates | Decrease in Distributions (SGD’000) | Change as % of FY2024 Distribution |
|---|---|---|
| + 50 bps | -$864 | -1.2% |
| + 100 bps | -$1,728 | -2.3% |
| + 150 bps | -$2,591 | -3.5% |
| + 200 bps | -$3,455 | -4.6% |
| + 250 bps | -$4,319 | -5.8% |
| + 300 bps | -$5,183 | -7.0% |
Do note the above is my estimation which may be different from management’s estimation. Nonetheless, if the interest rates were to increase by the basis points above, AA REIT may experience a fall in DPU accordingly.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 2.3 years | 2.6 years |
Weighted average term to maturity of their debt have shortened further to 2.3 years as of 31 March 2024. The metric remains Favorable currently as it still allows them sufficient time to refinance their debts as they fall due or wait for interest rates to decrease.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 0.96 | 0.93 |
The Price to Book (“P/B”) ratio currently stands at 0.96. This is computed using the closing share price of SGD1.26 on 17 May 2024 and the net asset value per share of the same SGD1.31 as of 31 March 2024. The P/B ratio is Favorable as you are paying for its book-value.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2024 | 3.74% | SGD 0.047 |
| 2023 | 7.85% | SGD 0.099 |
| 2022 | 7.47% | SGD 0.094 |
| 2021 | 7.70% | SGD 0.097 |
| 2020 | 6.75% | SGD 0.085 |
| 2019 | 8.13% | SGD 0.103 |
The dividend has decreased for the first half of 2024 with the higher number of units available. Therefore my expected dividend payout for 2024 will be SGD0.094 per share, extrapolated based on the SGD0.047 per share that has already been paid in the first 6 months of 2024.
As of 17 May 2024, with a closing share price of SGD1.26 this translates to a dividend yield of 7.48%. The dividend yield is Favorable. For my benchmark, a general reasonable range would be around an average of 5.50% to 6.50%, and AA REIT have been consistently above throughout the years.
Website: Reasonable Dividend Yield 2024Q2
Key Things to Note
Tenant Concentration
Throughout the years, AA REIT is continuously increasing the customer base and reducing reliance on the top 10 tenants. As of quarter end, AA REIT currently has the top 10 tenants contributing to 51.3% of the total revenue, with Woolworths which contributes to 13.4%. Based on the latest financial results the Woolworths Group is generating profits and cash flows and are unlikely to default on rent, AA REIT is now heavily reliant on a few customers for income. The tenant concentration is something investors should take note of.
Website: https://www.woolworthsgroup.com.au/
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | -5.9% | Unfavorable |
| Occupancy | 97.8% | Favorable |
| Gearing Ratio | 32.6% | Favorable |
| Interest Coverage | 2.4x | Unfavorable |
| Debt Maturity Profile | 2.3 years | Favorable |
| Price to Book Ratio | 0.96 | Favorable |
| Overall | | Neutral |
Overall, the metrics indicate that it is currently still neutral to invest in AA REIT. The fundamentals of AA REIT did not change this quarter, and the overall DPU decrease for 2024 was expected given that the increase in units was during this financial year. Investors will need to see if there are any changes during the next few quarters.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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Website: AIMS APAC REIT (SGX: O5RU): 2024 Third Quarter Business Update
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