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I was given an opportunity to take a tour of 4 of AA REIT's properties in the western part of Singapore and since the REIT is the largest investment in my portfolio, I accepted the offer right away after confirming that the tour is a private one. (Yes, I am still very shy.)
Everything tells me that my opinion of the management is right as they put investors' interests right at the front.
Being AK, in jest, I said they must do that since Mr. George Wang has such a big personal stake in the REIT.
Bad AK, bad AK!
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| Appointment time: 10AM. |
Shuttling between properties, we had a good conversation going:
1. With the oversupply of industrial properties in Singapore, I am worried about the vacancy rate for warehouses the most.
Apparently, the REIT is spending a lot of resources on as it is rather challenging and could get more so.
I reckon the REIT is doing quite well, otherwise.
2. Of course, we have heard stories of how some local companies move across the Causeway to take advantage of the cheaper land in Johor.
The biggest challenge is in finding labour and also the right type of labour for companies in the Iskandar region.
There is plenty of land there but not enough labour.
So, for many years to come, Singapore industrial properties will still be in demand.
3. Asset quality is a pertinent concern when we invest in REITs.
The REIT is picky not only when it comes to buying and divesting properties, they are also picky when it comes to which existing properties to benefit from AEIs.
Active portfolio management is something the REIT does well, I agree.
4. In a rising interest rate environment and also softening rentals, is there any plan to hold back a percentage of distributable income to lower the gearing level?
To be fair, the REIT's gearing level is not very high at about 32% but expecting property values to decline, gearing level could bump up.
The answer seems to be that the REIT rather distributes 100% of the available distributable income because they would have to pay corporate tax on whatever income they decide to retain even if it was just 5% or 10%.
5. Is there any possibility to refinance, locking in the still relatively low interest rates for a longer term?
There is a MTN maturing later this year and the interest on that is 4.9%.
They explained that a longer term loan could mean a higher interest and that a shorter term loan would mean a lower interest. So, there will be a trade off.
Well, I am hoping for a new 7 years MTN with interest meaningfully lower than 4.9%.
OK, here are some other photos:
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| 8 and 10 Pandan Crescent |
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| 20 Gul Way. |
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| 30 & 32 Tuas West Road being redeveloped. |
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| Another 20 Gul Way in the making! |
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| 1A, International Business Park. |
Oh, I also want to share these photos taken during the tour of the award winning (Green Mark Gold) 1A, International Business Park:
Definitely a beautiful working environment.
I cannot share everything that was discussed mostly because my memory is not what it used to be but I was very impressed by what I saw and what I heard.
Real estate can be a very good income generator.
However, not all of us have the ability to invest directly in a piece of real estate.
Even if we have a million dollars or two, we would be hard pressed to invest in a portfolio of real estate to reduce concentration risk.
Investing in well managed REITs solves this problem.
Although I have never attended a single AGM by AA REIT, just by taking note of what they did over time, I could tell that AA REIT is a well managed REIT where investors' interests are not neglected.
I am glad to have affirmation on this tour.
UPDATE (28 DEC 16)
AIMS AMP Capital Industrial REIT received Temporary Occupation Permit for its redevelopment at
30 & 32 Tuas West Road which is valued at S$60.7m, up more than 4 times from its former value S$14.1m.
It will deliver S$4.15m in rental income annually in year one with fixed annual rent escalations over the term of the lease – up from S$0.82m.
This is NOT a paid advertorial.
Related post:
2015 full year income from S-REITs.
Bloggy Award
23 comments:
Wow, you've made it, AK. Thumbs up! :D
I bought AIMSAMP this afternoon at $1.31. I will continue to accumulate if the share price gets lower again. This bring the average of $1.3322 at 13% discount of NAV.
i like the "this is not a paid advertorial" part best!
AA REIT is building a facility for Beyonics International. This is a 5 storey facility in Marsiling and will cost $39.4 million. Expected to be completed in 2H 2017. Yield on cost estimated to be 8.9%.
Beyonics will take a 10 years master lease with yearly rental escalation.
This will be DPU accretive. Accretion is estimated to be 0.3c per unit in the first year.
Good job!
AA REIT awarding the project to Boustead and coincidentally i own both shares .. how nice .. is this consider left pocket to right pocket? :)
Hi Capricon,
Could be a case of front pocket to back pocket too. More important to check that the pockets are in the same pair of trousers. ;p
[MEDIA RELEASE]
AIMS AMP Capital Industrial REIT announces DPU of 2.75 cents for 2Q FY2017
During the quarter, AA REIT secured 17 new and renewal leases, representing 13,193.8 sqm or 2.2 per cent of net lettable area. Portfolio occupancy remains strong at 92.7 per cent – above Singapore’s industrial property average of 89.4 per cent.
In August 2016, the Manager announced plans for AA REIT’s first third-party build-to-suit greenfield development for leading manufacturer, Beyonics International Pte Ltd, which will lease the premises for 10 years.
The greenfield development builds on AA REIT’s successful track record with four prior redevelopments in its existing portfolio.
AA REIT’s ongoing redevelopment at 30 & 32 Tuas West Road will be completed by January 2017 and is expected to boost rental income four-fold to S$4.15 million per annum. Meanwhile, redevelopment at 8 & 10 Tuas Avenue 20 is tracking on time and within budget. It is due for completion in 2H 2017.
Net asset value per Unit remained stable at S$1.47 after valuation of the portfolio as at 30 September 2016.
67.5% of the portfolio’s interest rate is fixed taking into account interest rate swaps and fixed rate notes, with a weighted average debt maturity of 2.4 years – up from 1.9 years last quarter.
Reduced overall blended funding cost (including funding of the Australian asset with Australian dollar loan) to 3.9 per cent from 4.2 per cent a year ago.
Aggregate leverage as at 30 September 2016 is 34.0 per cent (maintained average of 32 per cent over seven years).
AK huat liao man. I never have companies offer to me private tours...never knew got such things for investors...or is it for HNWIs only? :P
Hi Ricky,
I think it is more because I am a blogger. ;p
Thanks AK for the update on AA REIT.
Hi UN,
Glad to bring good tidings this festive season. ;)
Happy new year to you too :)
Hi AK, is this related to AAReit har?
http://www.businesstimes.com.sg/companies-markets/property-fund-of-aims-under-attack-from-wind-up-attempt?xtor=EREC-16-1[BT_Newsletter_1]-20170102-[Property+fund+of+AIMS+under+attack+from+wind-up+attempt]&xts=538380
Hi AK, is this related to AAReit har?
http://www.businesstimes.com.sg/companies-markets/property-fund-of-aims-under-attack-from-wind-up-attempt?xtor=EREC-16-1[BT_Newsletter_1]-20170102-[Property+fund+of+AIMS+under+attack+from+wind-up+attempt]&xts=538380
Hi Invest SG,
It is this:
AIMS Property Securities Fund.
Key highlights for 3Q FY2017 are:
· DPU of 2.77 cents per unit for the quarter (increase of 0.7 per cent from last quarter);
· Increased gross revenue and net property income for 3Q FY2017 by 1.5 per cent and 2.7 per cent respectively q-o-q;
· Executed 19 new and renewal leases in 3Q FY2017, representing 82,149.3 sqm (13.1 per cent of net lettable area);
· Portfolio occupancy of 94.0 per cent, above the industrial average of 89.5 per cent;
· Achieved TOP of third redevelopment property at 30 Tuas West Road on 27 December 2016, on time and below budget, delivering better financial returns than previously announced. Partial income contribution from the property will commence in March 2017 quarter, with full quarter income contribution in 1Q FY2018;
· Increased Net Asset Value per Unit to S$1.48 from S$1.47 in the preceding quarter mainly due to recognition of the development profit of 30 Tuas West Road.
For the third quarter of FY2017, the Manager achieved the following financial performance metrics:
· 84.0 per cent of the portfolio’s interest rate is fixed taking into account interest rate swap contracts and fixed rate notes with weighted average debt maturity of 2.1 years;
· Reduced overall blended funding cost (including funding of the Australian asset with Australian dollar loan) of 3.7 per cent from 4.2 per cent a year ago;
· Aggregate leverage as at 31 December 2016 is at 34.6 per cent.
Reader:
30 32 tuas west road and 8 10 tuas ave 20 are so close to the upcoming tuas west road MRT station!
AK:
Yes, I saw it for myself. :)
Reference:
http://www.commercialguru.com.sg/property-management-news/2016/9/136176/the-future-of-tuas
The REIT rather distributes 100% of the available distributable income because they would have to pay corporate tax on whatever income they decide to retain even if it was just 5% or 10%.
Hi AK,
I thought a REIT has to distribute at least 90% of distributable income to enjoy tax advantage. So it can retain 0-10%.
REITs would not have to pay corporate tax on the income they distribute as long as it is 90% or higher of their distributable income.
If they chose to distribute 90% and retain 10%, for example, that 90% is tax exempt but they would have to pay tax on the 10% they retained.
Hi AK
Have you discussed with yourself the possible effect that the newly introduced withholding tax in Malaysia will have on SG REIT DPU? If I have understood it correctly, the tennants are responsible for subtracting 10%(?) from the rent and also payment for services.
Regards.
Hi Richard,
All else remaining equal, we have to expect a reduction in DPU.
A back of the envelope calculation shows an approximately 5% reduction.
Chris Lim said...
I am curious about their DPU distribution.
I checked across a few years and they have been paying 100% of their distributable income.
Is this a norm across Industrial REIT?
If not, why wouldn't they want to retain 10%?
AK said...
You will find the answer here.
AA REIT: A private tour.
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