AIMs APAC REIT (SGX: O5RU)’s DPU Grows 5.1%

AIMS APAC REIT is a Singapore-based real estate investment trust that owns and manages a diversified portfolio of industrial properties located across the Asia-Pacific region. The REIT’s portfolio comprises 29 properties with a total net lettable area of approximately 786 thousands square meters, and a total valuation of S$2.2 billion. The REIT’s properties are located in Singapore, Australia, and Malaysia, and are primarily used for logistics, warehousing, and manufacturing activities.

The REIT has recently released its 2023 full year annual report and we will discuss its performance in this article.

Financial Performance

AIMS APAC REIT has delivered consistent growth in its distributable income over the past few years. In its latest 2023 annual report, the REIT reported a 5.1% increase in distributable income year-on-year. This growth was driven by higher rental income from the REIT’s existing properties, as well as contributions from newly acquired properties. The REIT’s portfolio occupancy rate stood at 98%, indicating strong demand for the REIT’s properties. This growth has been driven by the REIT’s focus on acquiring high-quality properties with strong rental income, as well as its ability to manage its properties efficiently.

The REIT’s gearing ratio, which measures the level of debt relative to the value of its assets, stood at 36.4%. This is within the REIT’s target gearing range of 30% to 40% and provides the REIT with sufficient debt headroom to pursue future acquisitions. The REIT’s interest coverage ratio, which measures its ability to service its debt obligations, stood at 3.8 times, which is not ideal, slightly below our expectation of 4 times.

Check our our Ultimate Guide to REITs Investing in Singapore 2023 article.

Growth Opportunities

1. Prudent capital management

The REIT has also demonstrated its ability to pursue growth opportunities through strategic acquisitions. In 2022, the REIT completed the acquisition of a industrial property in Australia for A$38.5 million. This property is leased to a leading logistics company on a long-term basis, providing the REIT with a stable and reliable income stream. The acquisition was funded through debt and existing cash reserves, demonstrating the REIT’s disciplined approach to capital management. Going forward, the REIT has indicated that it will continue to pursue acquisition opportunities that are accretive to its earnings and support its long-term growth prospects.

2. Diversified portfolio and tenant base

One of the key strengths of AIMS APAC REIT is its diversified portfolio. The REIT owns properties across various sectors, including logistics, business parks, and industrial estates. This diversification helps to mitigate the risk of concentration in any one sector and provides the REIT with a stable and resilient income stream.

The REIT’s logistics properties are in key logistics hubs, such as Singapore and Australia are leased to high-quality tenants, including logistics companies and e-commerce firms. The REIT’s business park properties are in Singapore and are leased to a diverse mix of tenants, including technology companies, research and development firms, and healthcare companies. The REIT’s industrial estate properties are in Malaysia and are leased to a mix of manufacturing and warehousing tenants.

3. Quality property portfolio

Another strength of AIMS APAC REIT is its focus on high-quality assets. The REIT has a disciplined approach to property acquisition and management and is committed to maintaining its properties to a high standard. This focus on quality helps to attract and retain tenants and supports the long-term value of the REIT’s portfolio. The REIT’s properties are well-located, with easy access to transportation networks and major industrial hubs. The properties are also well-maintained, with regular maintenance and upgrading works to ensure that they remain attractive to tenants.

4. Strong demand in logistics and industrial properties

Another factor that supports AIMS APAC REIT’s long-term growth potential is the increasing demand for logistics and industrial properties in the Asia-Pacific region. This demand is being driven by the growth of e-commerce and the increasing importance of supply chain efficiency. As businesses seek to improve their logistics operations, there is a growing need for high-quality logistics and warehousing facilities. This trend is particularly evident in markets such as Singapore and Australia, where the REIT has a significant presence.

What are the risks?

However, it is important to note that there are also some potential risks associated with investing in AIMS APAC REIT. One of the key risks is the potential impact of economic conditions on the demand for industrial properties. A downturn in the global economy could lead to lower demand for industrial properties, which could in turn affect the REIT’s rental income and distributions. The REIT’s properties are also subject to risks associated with property ownership, such as changes in government regulations and zoning restrictions, as well as natural disasters and other external events that may impact the properties’ value and rental income.

As a highly leveraged entity, the REIT is vulnerable to changes in interest rates, which could increase its cost of borrowing and impact its distributable income (see our article on how rising interest rates affect REITs).

Summary

AIMS APAC REIT is a well-managed real estate investment trust with a diversified portfolio of industrial properties located across the Asia-Pacific region. It scores 7 out of 10 in its fundamental ratings. The REIT’s focus on high-quality assets and disciplined approach to capital management have enabled it to deliver consistent growth in distributable income and attractive returns to investors. While there are some potential risks associated with investing in the REIT, its long-term growth prospects are supported by the increasing demand for logistics and industrial properties in the region.