Latest Earnings from AIMS AMP Capital Industrial REIT: A Tough Market Ahead

AIMS AMP Capital Industrial REIT (SGX: O5RU) released its second-quarter earnings for its fiscal year ending 31 March 2017 (FY2017) yesterday.

As a quick background, AA REIT has a focus on industrial properties and its current portfolio contains 26 properties with 25 being in Singapore and one located in Australia.

Let’s dig into the REIT’s results to get a better understanding of how the REIT has performed.

Financial highlights

  • For the quarter, gross revenue declined 4.3% year-on-year to S$29.9 million from S$31.3 million.
  • The drop in revenue flowed through to net property income (NPI), which decreased 6.9% to S$19.3 million.
  • Distributable income was S$17.5 million, down 1.4% from the S$17.8 million seen in the same period last year. Consequently, distributions per unit (DPU) ticked downwards by 1.8% from 2.80 cents to 2.75 cents.
  • AA REIT’s net asset value (NAV) per unit declined 3.2% from S$1.52 a year ago to S$1.47.
  • Moving on to the balance sheet, AA REIT’s aggregate leverage clocked in at 34% in the reporting quarter, up from 30.9% over the same period the year before. The REIT’s total debt had increased from S$448.4 million to S$501.9 million.
  • Meanwhile, AA REIT managed to increase its interest cover ratio marginally from 4.8 times a year ago to 4.9 times. The total cost of its debt had also reduced from 4.5% to 3.9%.
  • The REIT has no debt due on FY2017, but will see 23% of its total borrowings come due in FY2018. Investors may want to watch the REIT’s progress in refinancing its borrowings.

Business highlights

AA REIT reported a portfolio occupancy rate and weighted average lease to expiry of 92.7% and 2.6 years, respectively, for the reporting quarter. Both numbers were down from the same quarter a year ago (96.5% and 3.05 years).

On leasing activity, AA REIT had managed to secure 17 new or renewed leases.

Back in August 2016, AA REIT had announced plans to develop its first third-party build-to-suit greenfield project for Beyonics International Pte Ltd, a leading manufacturing company. Beyonics will be leasing the premises for 10 years upon completion. This project follows AA REIT’s successful redevelopment of four properties in its portfolio.

A future outlook

Ongoing redevelopment works at 30 & 32 Tuas West Road is expected to be done by January 2017. AA REIT thinks the redevelopment will help boost rental income in the property by four-fold to S$4.15 million per year. Meanwhile, redevelopment at 8 & 10 Tuas Avenue 20 is progressing according to schedule and within budget. It is expected to be done in the second-half of 2017.

In the earnings release, AA REIT commented that the industrial leasing market “will continue to remain challenging in the short term as rents and occupancies continue to be under pressure” as a result of “the weak economic climate and industrial oversupply situation in Singapore.”

Koh Wee Lih, the chief executive of AA REIT’s manager, had some thoughts to share on the REIT’s future plans:

“Our top priority is tenant retention as part of our active lease management strategy, while we continue to explore opportunities to unlock organic growth and seek risk-adjusted yield accretive investments. We also continue to manage risk through a prudent capital management and diversification across our portfolio of 26 properties”.

AA REIT’s units closed at a price of S$1.37 last evening. This gives the REIT a price-to-book ratio of 0.94.

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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 any companies mentioned.