AIMS AMP Capital Industrial REIT (SGX: O5RU), otherwise known as AA REIT, is one real estate investment trust with a rather interesting history.
It listed in 2007 as MacarthurCook Industrial REIT and was subsequently taken over – and renamed – by the current managers in 2009 at the height of the global financial crisis. The REIT has performed well over the past few years with its distribution per unit having grown from 9.922 Singapore cents in the fiscal year ended 31 March 2011 (FY2011) to 11.07 cents in FY2015.
AA REIT is the fourth-largest REIT in Singapore with 26 properties under management in here and Australia. It has a 60% exposure to warehouses, 20% to factories, and another 20% to business parks.
One of the strong points about AA REIT is that it has the potential to expand its Net Lettable Area (NLA) significantly (approximately 30%) due to unutilized plot ratios. The REIT has currently taken the opportunity to redevelop one of its properties after signing a master lease agreement with the lessee. By doing this, AA REIT can also 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 that the REIT can expand organically (via redevelopment) as opposed to inorganically (via acquisitions). AA REIT’s Manager has also stressed its intention to grow the REIT in this manner during the last few investor presentations. This is in contrast to what many of the other REITS do – grow via acquisitions.
AA REIT is trading at a price of $1.37 at the moment. The REIT has paid a distribution of 5.55 cents in the first-half of FY2016; annualising that figure will give AA REIT a distribution yield of 8.1% at its current price.
The REIT’s latest Net Asset Value (NAV) and leverage ratio stands at $1.52 and 30.9% respectively. With the REIT trading below its book value, there may be some margin of safety for investors. Also, the leverage ratio doesn’t look too onerous. The possibility of further NAV expansion due to the potential redevelopment of properties puts AA REIT in a good position for the future.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Esjay does not own shares in AIMS AMP Capital Industrial REIT.