On 5 November 2024, AIMS APAC REIT (“AA REIT”) have announced their half year result for FY2025. Their financial position remained stable, and management has drawdown on new unsecured Sustainability-Linked Loan this quarter which significant extended their debt maturity profile. It is worth noting that occupancy rate saw a notable decrease this quarter due to the impact of AEIs and transitory movement by tenants. While this is part of operations of any REIT, do note that investors should expect decrease in DPU for the next few quarters.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
Website: Financial Statements And Related Announcement::Half Yearly Results
Photo source: https://www.aimsapacreit.com/
Financial Highlights
Distribution Per Unit (“DPU”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | +5.7% | -1.7% |
| Rating | Favorable | Unfavorable |
With effect from November 2024, I will be using the quarter-on-quarter DPU changes as references for REITs that share their quarterly DPU changes. This is due to REITs are usually not as affected by seasonal changes.
For AA REIT, DPU disclosed are as follows:
- First Half Year of FY2025: SGD0.0467 per share
- Second Quarter of FY2025: SGD0.0240 per share
- First Quarter of FY2025: SGD0.0227 per share
DPU for the second quarter of FY2025 increased by 5.7% to SGD0.0240 per share from SGD0.0227 per share in the previous quarter. This is Favorable. Though, investors need to take note that the net property income for the second quarter of FY2025 amounted to SGD33 million, which is a decrease from SGD34 million for the first quarter of FY2025. Therefore, the increase was not based on operations.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 95.0% | 97.3% |
| Rating | Favorable | Favorable |
Occupancy rate as of 30 September 2024 decreased significantly to 95.0%. Management have disclosed that this was the impact of AEIs and transitory movement by tenants. Excluding these, the portfolio occupancy rate based on committed leases will be 96.7%.
The metric remains Favorable as it is at my expected healthy occupancy rate of 95%, though investors should continue to monitor for any updates as a decrease in occupancy may result in a decrease in DPU for the next few quarters.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 33.4% | 33.1% |
| Rating | Favorable | Favorable |
Gearing ratio increased slightly to 33.4% as of 30 September 2024. This metric remains unchanged at Favorable as there is more than sufficient headroom from the limit of 50% to fund new acquisitions through debt.
Do note that perpetual securities amounted to SGD373 million as of 30 September 2024. This is not included in the gearing ratio and is not a concern from the regulatory perspective as perpetual securities will not cause a breach in regulation and force AA REIT to take unfavorable measures. However, perpetual securities rank higher than unit holders should liquidation occur and has priority payment over distributions, something investors will need to keep in mind.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 2.5x | 2.5x |
| Rating | Neutral | Neutral |
The adjusted interest coverage for the trailing 12 months, which includes the amount reserved for distribution to Perpetual Securities holders, remain unchanged at 2.5 times as of 30 September 2024. The metric remains Neutral as it is still lower than my preference of 3.0 times.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 2.8 years | 2.1 years |
| Rating | Favorable | Favorable |
Weighted average term to maturity of their debt have lengthened to 2.8 years as of 30 September 2024. The significant change was due to drawdown of new unsecured Sustainability-Linked Loan (“SLL”) which management believes will enhance financial flexibility with staggered debt maturities. The metric remains Favorable as it allows them sufficient time to refinance their debts. Do note that approximately 14.1% of their debt will mature in the next 2 financial years.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 0.95 | 0.99 |
| Rating | Favorable | Favorable |
The Price to Book (“P/B”) ratio currently stands at 0.95. This is computed using the closing share price of SGD1.24 on 22 November 2024 and the net asset value per share of SGD1.30 as of 30 September 2024. The P/B ratio is Favorable as you are paying at a discount from its book-value.
As of 22 November 2024, the Market Capitalization is approximately SGD1,009 million.
Website: Yahoo Finance: AIMS APAC REIT (O5RU.SI)
Dividend
| Year | Yield | Total |
|---|---|---|
| 2024 | 7.56% | SGD 0.094 |
| 2023 | 7.98% | SGD 0.099 |
| 2022 | 7.59% | SGD 0.094 |
| 2021 | 7.82% | SGD 0.097 |
| 2020 | 6.85% | SGD 0.085 |
| 2019 | 8.27% | SGD 0.103 |
With the total dividend payout of SGD0.094 per share for the calendar year 2024 and closing share price of SGD0.124 as of 22 November 2024, this translates to a dividend yield of 7.56%. For my benchmark, a general reasonable yield would be around 5.00% and AA REIT have been consistently above throughout the years. The dividend yield is Favorable.
Website: Reasonable Dividend Yield 2024Q4 – 5.00%
Interest Rate Sensitivity
The Federal Reserve on 7 November 2024 have further slashed interest rate by a quarter point to a range of 4.50% to 4.75%. This is in line with earlier expectations for future rate cuts, which will benefit REITs in general.
Website: Federal Reserve cuts interest rates by a quarter point
The Federal Reserve has subsequently announced on 15 November 2024 that they will cut their key interest rate slowly and deliberately in the coming months, in part because inflation has shown signs of persistence, and the officials want to see where it heads next.
Website: Powell says Fed will likely cut rates cautiously given persistent inflation pressures
Should the interest rate change, AA REIT may be subjected to significant change in their cost of debt. The debt profile of AA REIT is as below:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $707,000 |
| Debt Not Hedged (%) | 26.0% |
| Debt at Floating Rate Exposed | $183,820 |
| Distributions to Unit Holders FY2024 | $74,321 |
Interest rate sensitivity analysis as below:
| Change in Interest Rates | Change in Distributions (SGD’000) | Change as % of FY2024 Distribution |
|---|---|---|
| 50 bps | $919 | 1.2% |
| 100 bps | $1,838 | 2.5% |
| 150 bps | $2,757 | 3.7% |
| 200 bps | $3,676 | 4.9% |
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.
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 51.2% 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 | +5.7% | Favorable |
| Occupancy | 95.0% | Favorable |
| Gearing Ratio | 33.4% | Favorable |
| Interest Coverage | 2.5x | Neutral |
| Debt Maturity Profile | 2.8 years | Favorable |
| Price to Book Ratio | 0.95 | Favorable |
| Overall | Favorable |
Overall, the metrics indicate that it remains Favorable to invest in AA REIT. While it has remained stable, investors should monitor their occupancy rate for any indications that it may worsen as it may affect future DPU.
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.
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