Right now, AIMS APAC REIT‘s (SGX: O5RU) share price (technically known as unit price for REITs) is at $1.06.
At that unit price, according to Seedly’s REITs tool, AIMS APAC REIT is valued at a price-to-book (PB) ratio of 0.8 and sports a distribution yield of 9.7%.
With the steep drop in its share price recently, is AIMS APAC REIT a buy in my books with the long-term in view?
Let’s explore using my 10-step guide to pick the best Singapore REITs.
As a summary, here are the 10 steps I use to pick the best Singapore REITs:
- Growth in Gross Revenue and Net Property Income
- Growth in Distribution Per Unit
- Property Yield of Between 5% and 9%
- Gearing Ratio of Below 40%
- Interest Coverage Ratio of Above 5x
- Healthy Portfolio Occupancy Rate
- Positive Rental Reversions
- Presence of Growth Prospects
- Acceptable Price-to-Book Ratio
- Distribution Yield of Above 5%
Business Background
AIMS APAC REIT is an industrial REIT with 27 properties, spanning from business parks to logistics and warehouse buildings.
Of its assets, 25 properties are located in Singapore, and two are in Australia.
The REIT is managed by AIMS APAC REIT Management Limited, which is wholly owned by AIMS APAC REIT’s sponsor, AIMS Financial Group.
1. Gross Revenue and Net Property Income (NPI) Check
Check for: Increasing gross revenue and NPI
First up, let’s look at AIMS APAC REIT’s gross revenue and NPI.
The REIT, which has a financial year that ends on 31 March each year, announced its 3Q 2020 earnings results on 31 January 2020.
For the quarter, gross revenue fell 1.2% year-on-year, but NPI rose 18.8% due to lower property operating expenses.
The higher gross revenue was largely due conversion from master leases to multi-tenancy leases for the REIT’s property at 1A International Business Park in November 2019, and lower rental and recoveries for its properties at 27 Penjuru Lane, 15 Tai Seng Drive, and 11 Changi South Street 3.
Looking at the longer term, the following table shows how gross revenue and NPI have performed from FY2015 to FY2019:
| FY2015 | FY2016 | FY2017 | FY2018 | FY2019 | Compound annual growth rate (CAGR) | |
|---|---|---|---|---|---|---|
| Gross revenue (S$' million) | 115.4 | 124.4 | 120.1 | 116.9 | 118.1 | 0.6% |
| Net property income (S$' million) | 80.0 | 82.3 | 79.4 | 76.4 | 78.5 | -0.5% |
It can be seen that AIMS APAC REIT is struggling to grow both its gross revenue and NPI over the years.
Verdict: Fail
2. Distribution Per Unit (DPU) Check
Check for: Increasing DPU
For 3Q 2020, AIMS APAC REIT posted a DPU of 2.50 Singapore cents, unchanged as compared to one year back.
Over the last five years, its DPU has been falling, as seen below:
| FY2015 | FY2016 | FY2017 | FY2018 | FY2019 | CAGR | |
|---|---|---|---|---|---|---|
| Distribution per unit (Singapore cents) | 11.07 | 11.35 | 11.05 | 10.30 | 10.25 | -1.9% |
Verdict: Fail
3. Property Yield Check
Check for: Property yield of between 5% and 9%
Next, let’s look at AIMS APAC REIT’s property yield.
For FY2019, AIMS APAC REIT had an NPI of S$78.5 million while its valuation of investment properties stood at S$$1.24 billion.
The figures translate to a property yield of 6.3%, which meets my criterion.
Verdict: Pass
4. Gearing Ratio Check
Check for: Gearing ratio below 40%
As of 31 December 2019, AIMS APAC REIT had a gearing ratio (also known as “aggregate leverage”) of a comfortable 35.2%.
Verdict: Pass
5. Interest Coverage Ratio Check
Check for: Interest coverage ratio above 5 times
AIMS APAC REIT’s interest coverage ratio, for its latest quarter, stood at 5.3x, which passes my criterion.
Verdict: Pass
6. Portfolio Occupancy Rate Check
Check for: Healthy portfolio occupancy rate
AIMS APAC REIT, as of 31 December 2019, had a portfolio occupancy of 89.4%, just above the JTC industrial average of 89.2%.
The REIT’s latest occupancy rate is also lower than the figure seen at end-September 2019 of 92.2%.
The lower occupancy was due to the transition of master leases to multi-tenancy leases at two of AIMS APAC REIT’s properties – 1A International Business Park and 20 Gul Way.
I would prefer AIMS APAC REIT to have an occupancy rate that is above 93% at least.
Verdict: Fail
7. Rental Reversion Check
Check for: Positive rental reversions
As of 31 December 2019, AIMS APAC REIT had a negative rental reversion of 1.92 %, which leaves much to be desired.
The REIT’s rental reversion rate has been negative for some time. For instance, at the end of FY2019, the figure stood at -5.8%.
Verdict: Fail
8. Growth Prospects Check
AIMS APAC REIT can grow mainly through asset enhancement initiatives (AEIs).
Its current portfolio has a couple of properties with under-utilised plot ratios, providing the REIT with organic growth opportunities.
More specifically, the REIT is currently redeveloping 3 Tuas Avenue 2.
The design-and-build redevelopment of the property will increase the gross floor area of the asset by 52% and transform it into a modern and versatile ramp-up industrial facility.
The property’s master tenant, a global medical device company, will occupy the entire building under an initial 10-year master lease.
Over at Australia, telco Optus, which occupies the Optus Centre property in Macquarie Park, New South Wales, has extended its lease term at the property for another 12 years.
The new lease, with an annual rental escalation of 3.25%, will start from 1 July 2021 following the completion of an AEI.
Verdict: Pass
9. Price-to-Book Ratio Check
Check for: Acceptable price-to-book ratio
At AIMS APAC REIT’s unit price of S$1.06, it has a PB ratio of 0.77x.
Over the past five years, its average PB ratio stood at around 1.0x.
With the latest PB ratio lower than the average, AIMS APAC REIT looks undervalued.
Verdict: Pass
10. Distribution Yield Check
Check for: Distribution yield to be above 5%
At AIMS APAC REIT’s unit price of S$1.06, it has a distribution yield of 9.7%, which makes the mark.
Verdict: Pass
The Final Verdict
AIMS APAC REIT has a final score of 6/10.
Even though AIMS APAC REIT has a high dividend yield of around 10%, I’ll skip investing in it as there are other better REITs in the Singapore stock market.
The REIT has shown a lack of growth or no growth in its gross revenue, NPI, and DPU. I also prefer a REIT with positive rental reversion.
An industrial REIT that investors can consider if they wish to invest in that sector is Ascendas Real Estate Investment Trust (SGX: A17U).
What Are Your Thoughts on AIMS APAC REIT?
Come discuss them and more in our Seedly Community under a page specifically dedicated to AIMS APAC REIT (SGX: O5RU).
Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.
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