AIMS APAC REIT FY2020 results.

This blog started as a reply to a reader's comment and it became quite long.

So, I decided to publish it as a blog because I think many readers are probably interested in hearing me talk to myself on AIMS APAC REIT's performance.

AIMS APAC REIT (AA REIT) is retaining some income instead of distributing 100% of their distributable income.

We are living in extraordinary times and this is an extraordinary move.

I remember when I was given a tour of some of their properties in the western part of Singapore, they told me that they preferred to distribute all their distributable income to investors because they would have to pay a tax on whatever income they retained.

If you are new to my blog or if you cannot remember, see:

A private tour of AA REIT's properties.

In that blog, I shared 5 questions which I asked and the answers I received from the CEO then.

Question number 4 was on if AA REIT thought of retaining some income.






Anyway, although it is an extraordinary move, I am glad they made it because things could get worse before they get better.

As for AA REIT's lowering DPU starting from FY2016, things have been pretty challenging for local industrial properties landlords in recent years.

That prompted me to blog about the situation in 2017:

AA REIT challenged?

At the time, AA REIT was trading at a premium to NAV.

Many REITs have Master Leases and these usually give an illusion of higher occupancy and also higher income.

I am not being critical here but just saying that this happens in the natural course of business for REITs.

When Master Leases expire and if they are not renewed, usually we see income for the REIT takes a hit.

This has happened to AA REIT in the past and it has happened again to AA REIT recently.

The important thing is whether we have an honest and competent manager in place to mitigate the effects and I think AA REIT has such a management.






The oversupply of industrial properties in Singapore which was partly a result of overbuilding meant negative rental reversions over the years and it has impacted DPU.

Unfortunately, being a smaller REIT, AA REIT does not have the financial muscle nor flexibility to acquire yield accretive assets as rapidly and, of course, it is also more difficult for them to do so when they offer a relatively high distribution yield.

This is why AA REIT's strategy has been predominantly the redevelopment of their assets on hand as many assets have not maxed out their plot ratios.

Of course, when assets are being redeveloped (i.e. torn down and rebuilt), they don't generate any income.

We should expect this to continue as the REIT has many more assets in Singapore which have not fully utilised their plot ratios.





AA REIT's portfolio occupancy has declined from 91% in 2017 to 89.4% now.

Their overall revenue has also reduced from $120.11 million in 2017 to $118.86 million now.

However, it is interesting to note that their NPI or net property income has gone up from $79.4 million in 2017 to $89 million now.

This is achieved on the back of gearing ratio declining from 36.4% to 34.8% too.

All in all, for an industrial properties S-REIT of this size, I feel that AA REIT has done pretty well.

To reiterate, the lower quarterly DPU of 2 cents announced today is due to the management being prudent in not distributing 100% of the REIT's distributable income due to economic uncertainties created by the COVID-19 crisis.

Having said this, like I said before, if the crisis were to drag on for many more months, it would be unrealistic to think that AA REIT's income would not be negatively impacted.

I increased my investment in AA REIT last week because I felt that things were more settled and not because I thought that the bull would come charging back soon.

I try to remind myself that bona fide investments with the ability to generate a relatively attractive and reliable income should form the bulk of my investment portfolio.

Of course, there are many investments for income available out there and we invest in what make sense for us.

AA REIT makes sense for me.




Related post:
AA REIT investment is larger now.
Reference:
AA REIT FY2020 presentation.