2 Important Things To Learn From A Fool’s Tour Of AIMS AMP Capital Industrial REIT

Over the weekend, a band of merry Fools – including me – had joined AIMS AMP Capital Industrial REIT (SGX: O5RU) for an on-site visit to four different properties in the REIT’s portfolio.

(For an excellent account of the tour, which was conducted by the REIT manager’s assistant fund manager Joanne Loh, check out my colleague Esjay’s article right here!)

As a quick background, AIMS AMP Capital Industrial REIT is one of the smaller real estate investment trusts (REIT) in Singapore. The REIT houses 26 properties, 25 of which are located in Singapore with the remaining one in Australia.

During the tour, there were lots of discussions with the REIT’s manager and there was plenty to learn about the REIT. But, here are two points which stood out to me:

1. Business Park, defined

For the third quarter of its financial year ending 31 March 2016 (FY2016), around one-fifth of AIMS AMP Capital Industrial REIT’s rental income had come from business parks.

As part of the tour, my colleagues and I at the Fool had visited 1A International Business Park (1A IBP). In my opinion, the aforementioned property had more of a feel of a commercial property as compared to the other warehouse properties we had visited.

During the visit, I learnt that having a space at 1A IBP helps its tenants portray a better corporate image of their own.

According to the Urban Redevelopment Authority (URA), a business park can be used for non-pollutive industries that engage in high technology, research and development, high value added, and knowledge intensive activities. Up to 40% of a business park property may be used for ancillary purposes such as showrooms and common facilities.

2. Master lease vs. Multi-tenanted leases

A master lease refers to a single lease signed with a counterparty for a property or multiple properties. An example would be the master lease that AIMS AMP Capital Industrial REIT signed with Eurochem Corporation for 1A IBP. In this case, Eurochem takes up the role of filling up the property with tenants and in turn, it pays a fixed fee to the REIT.

A multi-tenanted lease, on the other hand, has AIMS AMP Capital Industrial REIT playing a more active role. In this case, the REIT will be the one looking for multiple tenants to fill up a particular property.

I learnt that master leases offer fixed rental rates with built-in annual rate escalation. The master lease structure provides stability when there are less tenants looking for industrial space, as AIMS AMP Capital Industrial REIT will still get its fixed fee.

But, the REIT would not be able to enjoy any rental upside if and when demand picks up. A multi-tenanted lease structure, in contrast, tends to have shorter leases and would give the REIT a better ability to capture potential rental upsides.

Based on AIMS AMP Capital Industrial REIT’s latest quarterly results, master lease properties and multi-tenanted properties had contributed 48% and 52%, respectively, of the REIT’s rental income.

Foolish takeaway

AIMS AMP Capital Industrial REIT is a completely new REIT for me. The above represent my initial learnings about the REIT. As investors, we can benefit from learning about a stock over time. Hopefully, the notes above are helpful for interested investors to learn more and understand the REIT better.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.