This article has been edited on 23rd Aug 2017.


AIMS AMP Capital Industrial REIT (AA REIT) (SGX: O5RU) has a rather interesting history. It listed in 2007 as MacarthurCook Industrial REIT. Unfortunately, it fell into hardship during the financial crisis. It was then subsequently taken over by the current managers in 2009. Today, it is one of the larger industrials REIT’s listed in Singapore, owning about 25 properties and has a market capitalisation of S$908 million. Is AIMS AMP Capital Industrial REIT worth investing in?

We explore that question with 7 things you need to know about AA REIT.

Stock Information

1

TICKER SYMBOL: SGX: 05RU

MARKET CAP: SGD 908 Million

INDUSTRY: REIT

The Business

AA REIT has 27 properties under management in Singapore and Australia. 25 of these properties are operational and 2 are under development. The below diagram shows a breakdown of its properties in its portfolio.

      
Source: Aims AMP Industrial REIT investor presentation (July 2017)

As seen in the diagram above, the REIT has a good spread of properties across different sub segments in the industrial market. Ramp- up warehouses make up the biggest chunk making up slightly over 36% of its portfolio. Business parks are the next biggest followed by cargo life warehouses.

The diagram also sheds light on AA REITs lease profile, as seen 57% of the properties are multi-tenanted and the remaining are under master leases. Overall occupancy for the REIT stood at a decent 91% at the end of June 2017.


Source: Aims AMP Industrial REIT investor presentation (July 2017)

Moving on, the above diagram shows the REITs growth since 2009. As seen the REIT has grown at a very respectable clip from 2009 increasing its asset base from S$658 million to S$1.47 billion over 8 years. Revenues also followed suit increase at a similar clip, the diagram below sheds some light on this.

Source: Aims AMP Industrial REIT investor presentation (July 2017)

The slight dip in earnings in 2017 was due to the managers deciding to redevelop one of its properties. This temporarily reducing revenue and net property income for the REIT. However, over the long term, the redevelopment is a positive for the REIT as it increases the value of the property and will also fetch a higher rental income.

Overall for the fiscal year 2017, AA REIT reported a slight decline in revenue from S$ 124.4 million to S$120.1 million. Consequently, net property income came down slightly to S$79.4 million and distributable income came in at S$70.5 million.

Key Opportunities

Large and Diversified Tenant Base

Source: Aims AMP Industrial REIT investor presentation (July 2017)

AA REIT’s tenant base is very diversified. As seen from the diagram above many of its tenants come from different sectors, this helps to ensure that the REIT doesn’t face any concentration risk. Also, it allows the REIT to manage its rentals better as it isn’t dependent on one sector doing well. Apart from having a diversified tenant base, the REIT’s tenants are also of high quality. This can be seen from the diagram below.

Source: Aims AMP Industrial REIT investor presentation (July 2017)

Looking at the diagram above the 10 largest tenant makes up 59.3 % of its gross rental income.
As seen in the diagram, the biggest tenant is CWT which makes up 19.2% of the REITs income. However, it is important to note that most of the companies listed in the top 10 tenants are reputable companies that have been around for a relatively long time.

Untapped potential in its current portfolio

One of the advantages that AA REIT has is that it has the potential to expand its Net Lettable Area (NLA) significantly (Approximately 30%) due to unutilized plot ratios. The company has currently taken the opportunity to redevelop one of its properties after signing a master lease agreement with the lessee. By doing this the company can charge higher rents as the property specifications are catered to the lessee’s needs.

There is potential for further such developments in the future which would mean the company can expand inorganically organically (via redevelopment) as opposed to organically inorganically(via acquisitions). The management has also stressed its intention to grow inorganically organically during the last few investor presentations. This contrasts with what many of the other REITS do – grow organically inorganically. Which means they grow by buying up new properties.

Source: Aims AMP Industrial REIT investor presentation (July 2017)

Key Risks

Excess space inventory

Source: Mapletree Industrial Trust’s investor presentation

I took the liberty of borrowing a slide from Mapletree Industrials presentation. The diagram shows that there might be an excess of industrial space in Singapore. This is a key risk for the REIT as it means that tenants will have higher bargaining power for rental rates at the REITs properties. This is mostly because if a REIT where to overcharge its tenants they have the option of shifting to another property.

Economic Slowdown

One of the other key risks is that of an economic slowdown. The industrial REIT sector is dependent on the economy doing well. Especially here in Singapore, the REIT is dependent on the trading environment. The import/export market has been relatively quiet over the last few years due to an economic slowdown, however this seems to be picking up.

Valuation

AA REIT is currently trading at a price of $1.39. It had a distribution yield of $0.11 in the fiscal year ending 2017. It has a Net Asset Value (NAV) of $1.39, implying a price to book ratio of 1.0 times. It is also offering a dividend yield of about 7.9%.

Investor Relations

Investor Relations Manager
Telephone: (65) 6309 1050
Facsimile: (65) 6534 3942
Email: investorrelations@aimsampcapital.com

Top Shareholders (31st September 2016)

  1. HSBC (Singapore) Nominees Pte Ltd 22.36%
  2. DBS Nominees (Private) Limited 15.77%
  3. DBSN Services Pte. Ltd. 9.10%

Financials

Income Statement

Balance Sheet

What Do You Think Of AIMS AMP Capital Industrial REIT As An Investment? Will You Invest In it? Share Your Views Below

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Ketz’s personal capacity. It does not in any way represent those of his employer and other related entities. Ketz does not own any companies mentioned.

2 COMMENTS

    • Hi FFE, you are right. Thank you for spotting our error. Currently, we do have a proofreader. We try to make sure all articles are error-free before we post them. Unfortunately, we still make mistakes from time to time and we really depend on observant readers like yourselves to help us.
      Thank you once again for your sharp eye!

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