AIMS APAC REIT Review: Is the 12.5% Growth Resilient?

September 5, 2021

AIMS APAC REIT(05RU.SGX) is a real estate investment trust specializing in industrial properties. Listed on the Singapore Exchange since 2007, AIMS APAC invests in industrial, logistics, and business park real estate across the Asia Pacific region.

Aims APAC REIT aims to bring secure and stable distributions and capital appreciation to unitholders. AIMS REIT has twenty-eight properties under management. Twenty-six of them are in Singapore, and the other two are in the east of Australia.

Business Models and Operations

AIMS REIT makes profits through managing the twenty-eight properties. You may beware of some characteristics of the trust:

“The Manager”

AIMS hires the parent group’s member “AIMS APAC REIT Management Limited”(also called the Manager) as a property manager to run the assets.

Thus, it is an internal management firm for the real estate trust within AIMS Financial Group(the sponsor of AIM APAC REIT).

Investment Strategies

1. Strategic Investments

AIMS uses total return and built-to-suit approaches to evaluate investment opportunities in seeking sustainable income and capital growth.

Besides, it focuses on freehold property investments and long-term lease contracts.

2. Active Asset and Leasing Management

AIMS chooses some potential properties for asset enhancements and engages in active leasing strategies. High occupancy is its goal.

3. Prudent Capital Management and Risk Management

AIMS also keeps a conservative gearing ratio and looks for the sources of the lowest funding costs for projects.

4. Capital and Business Partnerships for Growth

Moreover, AIMS will partner with mind-like investment companies for new opportunities and projects of appropriate risk levels deemed suitable for AIMS APAC REIT.

Sustainability

The Manager(the property management) has begun to publish an annual report called the sustainability report since 2017.

The annual sustainability report summarizes what the Manager has done about keeping resilient and resources efficient over the past year.

The ultimate objectives are long-term growth and value creation for stakeholders.

The Portfolio

AIMS REITs portfolio comprises five categories of assets.

1. Business Park:

1A, International Business Park, Singapore
Optus Centre(49% ownership, Singapore
1-5 Lyonpark Road, Macquarie Park, NSW, Australia

2. Hi-Tech:

29 Woodlands Industrial Park E1, Singapore

3. General Industrial:

26 Tuas Avenue 7, Singapore
2 Ang Mo Kio 65 , Singapore
61 Yishun Industrial Park A, Singapore
541 Yishun Industrial Park A, Singapore
8 Senoko South Road, Singapore
51 Marsiling Road, Singapore
8 Taus Avenue 20, Singapore
3 Taus Avenue 2, Singapore

4. Light Industrial:

15 Tai Seng Drive, Singapore
23 Tai Seng Drive, Singapore
135 Joo Seng Road, Singapore
1 Kallang Way 2A, Singapore
1 Bukit Batok Street 22, Singapore
Boardriders APAC HQ, Burleigh Heads, Gold Coast, Queensland, Australia.

5. Logistics and Warehouse:

8-10 Pandan Crescent, Singapore
10 Changi South Lane, Singapore
11 Changi South Street 3, Singapore
103 Defu Lane 10, Singapore
56 Serangoon North Avenue 4, Singapore
7 Clementi Loop, Singapore
3 Toh Tuck Link, Singapore
27 Penjuru Lane, Singapore
20 Gul Way, Singapore
30 Tuas West Road, Singapore
7 Bulim Street, Singapore

Performance

AIMS APAC REIT has a better growth quarter this year than the first quarter of 2020.

The gross revenue sees 16.8% growth.
The net property income has 23.9% growth.
The profits from joint ventures have grown by 13.8%.
The distributions to unitholders see 12.6%.
The DPU grew to S2.25 cents, more 12.5% than S2 cents last year.

Distribution per Unit (DPU)

The high DPU payout is due to the growth of net property income for the following reasons:

New contributions from the project of “7 Bulim Street”.
Higher rental income from “20 GUI Way” and “8 & 10 Pandan Crescent” projects.
The above assets are of the type of “Logistics and Warehousing.” Their contribution takes up more than 50% of the total net property income.
The Manager uses a pro-active leasing management technique to secure thirty-eight new and renewal leasing contracts. Of these, 34% are new leasing contracts. They take up 9.8% of the net lettable area.
The high occupancy rate of 95.7%. It is higher than the industry average of 90.1%
AIMS has a diversified tenant base of 188, including international and domestic companies. They come from a wide array of industries.
AIMS’s income comes from two markets: the Singapore market has 84.2%, while the Australian market has 15.8%.
Four income sources have more than 90% of the total revenue: Logistics and Warehouses – 50.5%, Business Park – 16.7%, General Industrial – 14.2%, Light Industrial – 10.2%.
Multi-tenanted type of lease contracts occupies 64.7% while Master Leases keeps with 35.3%.
Three tenant industry clients make up 60.1% of AIMS’s income base. They comprise the Logistics – 34.7%, the Telecommunications – 13.6%, the Engineering – 11.8%.
The weight average lease expiry is 3.98 years long.
Acquisition of a new project: “315 Alexandra Road,” is behind the schedule and pending regulatory approval. The cost is S$102 million.
Rental reversion is -0.4% due to weak demand for the light industrial sector.

Financials

AIMS has a solid balance sheet to expect further future expansion.

AIMS provides the latest information about its financial power at the end of the first quarter of 2022 financial year:

The gearing ratio remains within a healthy range of 34.3% well under the required set of under 50% by the Monetary Authority of Singapore. AIMS still has ample ammunition to make deals in the future.
The interest coverage is 3.3x, above the 2.4x required set. AIMS has solid financial interest payment capability.
The overall interest cost for AIMS is 2.8%, lowered from 3.3% in the last first quarter. The lower interest rate means lower cost and higher profit for operations.
AIMS has S$11 million cash balance and an unused credit line of S$126.3 million. Besides, it secures commitments to refinance the debts to expire soon. The debt hedged reaches 77.2%.
The compound annual growth rate is 5.5% since 2011.
AIMS’s portfolio of land leases of 45.3 years on average. Close to 60% of portfolio land assets have the range of 20 to 40 years to expiry. They have the longest tenure, and make the properties better valuations among peers.

Our Verdict

AIMS APAC REIT has a market cap of S$1.08 billion. The share price has gone from the lowest S$1.04 on Mar 01 since the pandemic, 2020, to S$1.54 on Aug 20, 2021. A 48% rebounce proves the resilience.

It has a dividend yield of 5.92%.

We are optimistic it can manage the payout rate of about 6% and deliver secure distributions to unitholders.

The following may contribute to the management’s determination in doing so.

Trade demand for the second half-year has accelerated due to seasonal factors like Thanksgiving day and Christmas. Apart, the resumption of spending in the post-pandemic prompts businesses to resume shipping.
Businesses make precautious stockpiling and frequent transportations due to the shifts in supply chains. Singapore and Southeast Asia benefit from the changes.
The “315 Alexandra Road” due to completion later this year may bring new income to the trust.A new project for a business park in Australia may be in the pipeline. We may expect more transactions in the future.
The management continues to see strong performance from the Logistics and Warehouse in the remaining time for this year.
The inclusion of AIM APAC REIT in the FTSE EPRA NAREIT index solidifies investors’ confidence in AIMS. It has a positive impact on the business.
What’s more, the management seeks organic growth like increasing rental reversions and locating new growth projects. It may give surprises to investors.
However, part of the increase in net property income is due to the absence of the write-back provisions. It may affect the net profit with the possible inclusion of the write-back provision.
Light Industrial recorded weak performance. The vulnerable business may lead to lower profits for the trust.
About 20% of lease contracts will expire this year. The Logistics and Warehouse and the Light Industrial take up half of them separately. It may increase the renewal and rental reversion risks.

Conclusion

AIMS remains an edge in the Singapore economy. We expect the company to benefit from the following:

Strong demand funding and favorable shifts to the industry.
More earning surprises.
Solid financial position among other REITs.
AIMS looks for more expansion opportunities domestically and overseas.
AIMS Partners with businesses to diversify and increase profits.

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