On 31 July 2024, AIMS APAC REIT (“AA REIT”) have announced their first quarter business update for FY2025. Interest coverage have improved which have help the financial position for AA REIT to be more favorable. This will be the final quarter where the comparison for DPU was with a smaller unit base, as we will be able to see if DPU has actual improvements between FY2025 and FY2024.
Website: General Announcement::AIMS APAC REIT – First Quarter FY2025 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 | -1.7% | -5.9% |
DPU for the first quarter of FY2025 decreased by 1.7% to SGD0.0227 per share from SGD0.02310 per share 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 | 97.3% | 97.8% |
Occupancy rate as of 30 June 2024 decreased slightly to 97.3%. The metric remains 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 | 33.1% | 32.6% |
Gearing ratio increased slightly to 33.1% as of 30 June 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 | 2.5x | 2.4x |
The adjusted interest coverage, which includes the amount reserved for distribution to Perpetual Securities holders, for the trailing 12 months stands at 2.5 times as of 30 June 2024. The metric has shifted to Neutral as it has improved although it is still lower than my preference of 3.0 times.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 2.1 years | 2.3 years |
Weighted average term to maturity of their debt have shortened further to 2.1 years as of 30 June 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 | 0.99 | 0.96 |
The Price to Book (“P/B”) ratio currently stands at 0.99. This is computed using the closing share price of SGD1.30 on 2 August 2024 and the net asset value per share of SGD1.31 as of 30 June 2024. The P/B ratio is Favorable as you are paying for its book-value.
Dividend
| Year | Yield | Total |
|---|---|---|
| 2024 | 5.37% | SGD 0.070 |
| 2023 | 7.61% | SGD 0.099 |
| 2022 | 7.24% | SGD 0.094 |
| 2021 | 7.46% | SGD 0.097 |
| 2020 | 6.54% | SGD 0.085 |
| 2019 | 7.88% | SGD 0.103 |
The dividend is on track with my earlier expectation of dividend payout for 2024 to be SGD0.094 per share, extrapolated based on the SGD0.070 per share that has already been paid in the first 9 months of the calendar year 2024.
As of 2 August 2024, with a closing share price of SGD1.30 this translates to a dividend yield of 7.24%. For my benchmark, a general reasonable range would be around an average of 5.75% and AA REIT have been consistently above throughout the years. The dividend yield is Favorable.
Website: Reasonable Dividend Yield 2024Q3 – 5.75%
Interest Rate Sensitivity
The Federal Reserve on 1 August 2024 kept its key interest rate at 5.25% to 5.50% ever since raising it on 26 July 2023. However, citing “some further progress” toward its 2% inflation goal, Fed Chair Jerome Powell at the press conference said a rate cut in September is “on the table,” provided the inflation data continues to be encouraging.
Website: Fed recap: Chair Powell gives the September rate cut signal traders were hoping for
Should the interest rate may increase further, AA REIT may be subjected to significant change in their cost of debt in the near future. The debt profile of AA REIT is as below:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $703,000 |
| Debt Not Hedged (%) | 26.0% |
| Debt at Floating Rate Exposed | $182,780 |
| 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 | -$914 | -1.2% |
| + 100 bps | -$1,828 | -2.5% |
| + 150 bps | -$2,742 | -3.7% |
| + 200 bps | -$3,656 | -4.9% |
| + 250 bps | -$4,570 | -6.1% |
| + 300 bps | -$5,483 | -7.4% |
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 51.1% 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 | -1.7% | Unfavorable |
| Occupancy | 97.3% | Favorable |
| Gearing Ratio | 33.1% | Favorable |
| Interest Coverage | 2.5x | Neutral |
| Debt Maturity Profile | 2.1 years | Favorable |
| Price to Book Ratio | 0.99 | Favorable |
| Overall | Favorable |
Overall, the metrics indicate that it is Favorable to invest in AA REIT. The main improvement is the increase in interest coverage, and the overall DPU decrease for the quarter 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.
Previous Post
AIMS APAC REIT (SGX: O5RU): 2024 Full Year Result
One thought on “AIMS APAC REIT (SGX: O5RU): 2025 First Quarter Business Update”
Comments are closed.