On 28 January 2025, AIMS APAC REIT (“AA REIT”) announced their third quarter business update for FY2025. It is noted that DPU remained unchanged from the previous quarter, an impact from the lowered occupancy rate due to the ongoing AEIs. This in turn has likely contributed to the reduction of their interest coverage, something investors who are concerned with the amount of perpetual securities AA REIT has should take note of. While this is part of operations of any REIT, do note that this may translate to 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: General Announcement::AIMS APAC REIT – Third Quarter FY2025 Business Update
Photo source: https://www.aimsapacreit.com/
Financial Highlights
Distribution Per Unit (“DPU”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | Unchanged | +5.7% |
| Rating | Neutral | Favorable |
For AA REIT, DPU disclosed are as follows:
- Third Quarter of FY2025: SGD0.0240 per unit
- Second Quarter of FY2025: SGD0.0240 per unit
- First Quarter of FY2025: SGD0.0227 per unit
DPU for the third quarter of FY2025 remain unchanged at SGD0.0240 per unit from the previous quarter. Net property income amounted to SGD33 million which is consistent with the previous quarter. This metric is Neutral.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 94.5% | 95.0% |
| Rating | Neutral | Favorable |
Occupancy rate as of 31 December 2024 decreased to 94.5%. 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 96.3%. The metric shifted towards Neutral as it is below my expected healthy occupancy rate of 95%.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 33.7% | 33.4% |
| Rating | Favorable | Favorable |
Gearing ratio increased slightly to 33.7% as of 31 December 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 | 2.4x | 2.5x |
| Rating | Unfavorable | Neutral |
The adjusted interest coverage for the trailing 12 months, which includes the amount reserved for distribution to Perpetual Securities holders, decreased to 2.4 times as of 31 December 2024. The metric shifted towards Unfavorable as it is significantly lower than my preference of 3.0 times.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.2 years | 2.8 years |
| Rating | Favorable | Favorable |
Weighted average term to maturity of their debt have lengthened to 3.2 years as of 31 December 2024. The significant change was due to successful refinancing, with 0.0% of their debt due to mature in the next 2 financial years. The metric remains Favorable as it allows them sufficient time to refinance their debts.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 1.00 | 0.95 |
| Rating | Favorable | Favorable |
The Price to Book (“P/B”) ratio currently stands at 1.00. This is computed using the closing share price of SGD1.26 on 21 February 2025 and the net asset value per unit of SGD1.26 as of 31 December 2024. The P/B ratio is Favorable as you are paying at its book-value.
As of 21 February 2025, the Market Capitalization is approximately SGD1,026 million.
Website: Yahoo Finance: AIMS APAC REIT (O5RU.SI)
Dividend
| Year | Yield | Total |
|---|---|---|
| 2025 | 1.90% | SGD 0.024 |
| 2024 | 7.44% | SGD 0.094 |
| 2023 | 7.85% | SGD 0.099 |
| 2022 | 7.47% | SGD 0.094 |
| 2021 | 7.70% | SGD 0.097 |
| 2020 | 6.75% | SGD 0.085 |
The dividend payout for the first quarter of the calendar year 2025 is higher than the previous calendar year when annualized. As a conservative estimate, we will use the total dividend payout of SGD0.094 per unit for the calendar year 2024.
With a closing share price of SGD0.126 as of 21 February 2025, this translates to a dividend yield of 7.44%. For my benchmark, a general reasonable yield would be around 5.25% and AA REIT have been consistently above throughout the years. The dividend yield is Favorable.
Website: Reasonable Dividend Yield 2025Q1 – 5.25%
Interest Rate Sensitivity
The Federal Reserve on 30 January 2025 have kept interest rates unchanged at a range of 4.25% to 4.50%. This is due to significant uncertainty in the U.S. economic landscape, with a healthy set of macroeconomic fundamentals that have changed little in recent months, but coming decisions from the Trump administration on immigration, tariffs, taxes and other areas that could prove disruptive.
Website: Fed leaves rates unchanged, sees no hurry to cut again
AA REIT have provided the interest rate sensitivity analysis as below. Should the interest rate change by another 1.0%, using FY2024 DPU of 9.36 cents as a base, DPU is expected to change by 2.6%.
| Change in Interest Rates | Change in DPU (cents) | Change as % of FY2024 DPU |
|---|---|---|
| 50 bps | 0.12 | 1.3% |
| 100 bps | 0.24 | 2.6% |
| 150 bps | 0.36 | 3.8% |
| 200 bps | 0.48 | 5.1% |
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 50.9% of the total revenue, with Woolworths which contributes to 13.3%. 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 | Unchanged | Neutral |
| Occupancy | 94.5% | Neutral |
| Gearing Ratio | 33.7% | Favorable |
| Interest Coverage | 2.4x | Unfavorable |
| Debt Maturity Profile | 3.2 years | Favorable |
| Price to Book Ratio | 1.00 | Favorable |
| Overall | Neutral |
Overall, the metrics indicate that it has shifted towards Neutral to invest in AA REIT. The key shifts this quarter were the DPU, occupancy and interest coverage. These 3 factors are inter-linked, as lower occupancy will contribute to lower net property income and DPU and assuming no other factors, a lower interest coverage. Investors will need to monitor over the next few quarters if there is any further impact.
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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