On 31 January 2024, AIMS APAC REIT (“AA REIT”) have announced their third quarter business update for FY2024. Worth noting that DPU have decreased by 4.1% for the 9 months ending 31 December 2023, owing to the enlarged unit base following the Equity Fund Raising (“EFR”) in July 2023. While this has strengthened AA REIT’s balance sheet, it was not used to purchase any accretive investments and therefore DPU is likely to continue decreasing over the next few quarters as it adjusts. However it does provide opportunities for AA REIT to support planned Asset Enhancement Initiatives (“AEI”) and any future growth opportunities. Investors will need to keep an eye out for any of such news.
Website: General Announcement::AIMS APAC REIT – Third Quarter FY2024 Business Update
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 | -4.1% | -1.1% |
DPU for the 9 months ending 31 December 2023 decreased by 4.1% to SGD0.0699 from SGD0.0729 in the same period of the previous financial year. 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. This metric is Unfavorable.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 98.1% | 98.1% |
Occupancy rate as at 31 December 2023 remains unchanged at 98.1%. This is 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 | 32.2% | 32.1% |
Gearing ratio remains relatively unchanged at 32.2% as at 31 December 2023. This metric is 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 | 2.3x | 2.2x |
The adjusted interest coverage, which includes the amount reserved for distribution to Perpetual Securities holders, for the trailing 12 months stands at 2.3 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 13 February 2024 have indicated that interest rates may need to stay high for a longer period of time as they are waiting for more evidence of easing price pressures before they cut interest rates, after a government report on Tuesday showed consumer inflation stayed elevated last month. This was after increasing the interest rates to a range between 5.25% and 5.50% on 26 July 2023.
Website: Fed seen waiting longer to cut rates as inflation stays elevated
I have thus performed the sensitivity analysis using the information as at 31 December 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $694,000 |
| Debt Not Hedged (%) | 24.0% |
| Debt at Floating Rate Exposed | $166,560 |
| Distributions to Unit Holders FY2023 | $71,623 |
Interest rate sensitivity analysis as below:
| Change in Interest Rates | Decrease in Distributions (SGD’000) | Change as % of FY2023 Distribution |
|---|---|---|
| + 50 bps | -$833 | -1.2% |
| + 100 bps | -$1,666 | -2.3% |
| + 150 bps | -$2,498 | -3.5% |
| + 200 bps | -$3,331 | -4.7% |
| + 250 bps | -$4,164 | -5.8% |
| + 300 bps | -$4,997 | -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 | 2.6 years | 2.8 years |
Weighted average term to maturity of their debt stands at 2.6 years as at 31 December 2023. This is Favorable and it 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 | 0.93 | 0.94 |
The Price to Book (“P/B”) ratio currently stands at 0.94. This is computed using the closing share price of SGD1.26 on 14 February 2024 and the net asset value per share of the same SGD1.35 as at 31 December 2023. The P/B ratio is Favorable as you are paying for its book-value.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2024 | 1.86% | SGD 0.023 |
| 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 this quarter with the higher number of units available. Therefore my expected dividend payout for 2024 will be extrapolated based on the payout of SGD0.023 per share this quarter. When annualised this would amount to SGD0.092 per share for 2024.
At 14 February 2024, with a closing share price of SGD1.26 and expected dividend payout of SGD0.092 for the full calendar year 2024, this translates to a dividend yield of 7.30%. The dividend yield is Favorable. For my benchmark, a general reasonable range would be around an average of 5.25% to 6.25% in the current environment, and AA REIT have been fairly consistent throughout the years.
Website: Reasonable Dividend Yield 2024Q1
Key Things to Note
Tenant Concentration
Although AA REIT is continuously increasing the customer base and reducing reliance on the top 10 tenants, AA REIT currently has the top 10 tenants contributing to 50.6% of the total revenue, with Woolworths which contributes to 13.6% of the total revenue. 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 | -4.1% | Unfavorable |
| Occupancy | 98.1% | Favorable |
| Gearing Ratio | 32.2% | Favorable |
| Interest Coverage | 2.3x | Unfavorable |
| Debt Maturity Profile | 2.6 years | Favorable |
| Price to Book Ratio | 0.93 | Favorable |
| Overall | | Neutral |
Overall, the metrics indicate that it is neutral to invest in AA REIT. The main change is the decrease in DPU due to the enlarged share base. The metric is likely to remain unfavorable as the equity fund raising was used to repay debts and not source for accretive investments. Therefore shareholders will see some dilution to their existing holdings although the impact will be less significant for those who have subscribed.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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