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AIMS AMP Capital Industrial REIT’s Latest Earnings: What Investors Should Know

Yesterday, AIMS AMP Capital Industrial REIT (SGX: O5RU) released its first-quarter earnings for its financial year ending 31 March 2017 (FY2017). The reporting period was from 1 April 2016 to 30 June 2016.

AIMS AMP Capital Industrial REIT, or AA REIT for short, is a real estate investment trust that invests in industrial real estate located throughout the Asia Pacific region.

Its portfolio currently consists of 26 industrial properties – 25 are of them located in Singapore while one is situated in Australia. The Australian property, which is a business park, is 49% owned by AA REIT.

Those who are interested to learn more about AA REIT can check out my colleagues’ articles on a recent visit they made to the REIT’s properties. They are found here here and here.

Financial highlights

Let’s have a brief glance at the latest financial numbers from AA REIT:

  • Gross revenue for the reporting quarter came in at S$29.2 million, down 3.5% year-on-year.
  • But, net property income managed to increase by 1% to S$20.4 million.
  • The reporting quarter’s distribution per unit (DPU) is 2.75 cents, unchanged from the same quarter a year ago.
  • AA REIT has a net asset value (NAV) per unit of S$1.47 as of 30 June 2016. This is 3.4% lower when compared to 30 June 2015, when the figure stood at S$1.52.

For the reporting quarter, gross revenue declined due to a property tax refund of S$1.1 million the REIT had given to two tenants. Excluding the tax refund, gross revenue would have been stable at S$30.3 million.

Investors may also want to keep a watchful eye on a REIT’s debt profile as it could give us clues on the sustainability of a REIT. Here’s AA REIT’s debt profile:

AA REIT debt profile
Source: AA REIT’s earnings presentation

AA REIT has maintained an average gearing of around 32% over its past seven fiscal years. Its gearing has crept up from a year ago and is above the average, but it is still lower than a high of 34% seen in FY2013.

The REIT’s weighted average debt maturity is currently at 1.9 years, but on a pro-forma basis, the figure is at 2.7 years. On 25 July 2016, the REIT announced that it had refinanced S$100 million worth of loans. The refinancing extended the REIT’s debt-maturity and also managed to result in interest cost savings of more than S$1 million per year.

Right now, 89.3% of AA REIT’s borrowings have fixed interest rates.

Operational highlights

Let’s turn our focus now to the operational aspects of the REIT. The occupancy of its portfolio declined to 92.7%from 96.1% a year ago.

The sizeable decline in occupancy can be explained by the ongoing redevelopment of two properties in Tuas. Even though the occupancy rate went south, it’s still above the industrial average of 90.1%.

AA REIT occuapncy and WALE table
Source: AA REIT’s earnings presentation

During the quarter, 18 new and renewal leases were executed, representing 4.8% of AA REIT’s total net lettable area. But, the weighted average rental decreased by 1.6%. This could be a direct result of the softening industrial property market in Singapore.

In FY2018, 29.5% of leases by gross rental income will expire and there’s a chance that the renewals may be done at lower rental rates than now, just like the leases signed above. This is something investors should be aware of.

The road ahead

AA REIT’s chief executive, Koh Wee Lih, had shared some comments in the earnings release on the REIT’s latest set of results. He said:

“We’re pleased to deliver stable results despite the challenging market conditions. We increased net property income with proactive asset and lease management focused on managing cost while maintaining prudent gearing of 33.1 per cent, and continued on our strategy to unlock organic growth from our portfolio.”

Going forward, the REIT said that it will continue to “remain focused on managing risks through prudent capital management and diversification across its portfolio of 26 properties.” It will also “continue its proactive approach in managing its assets and leases to help navigate the short-term volatility and these challenging market conditions.”

AA REIT’s units closed at a price of S$1.485 on Tuesday. This gives the REIT a historical price-to-book ratio of close to 1 and a trailing yield of 7.64%.

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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 Sudhan P owns units in AIMS AMP Capital Industrial REIT.