1. Describe AA REIT’s recent financial performance.
AIMS APAC REIT (AA REIT) is a real estate investment trust with the principal investment objective to invest in a diversified portfolio of income-producing real estate assets located throughout the Asia Pacific region that is used for industrial purposes, including, but not limited to warehousing and distribution activities, business park activities and manufacturing activities. AA REIT’s existing portfolio consists of 28 properties located in Singapore and Australia.
Despite the ongoing Covid-19 pandemic and resulting economic impact, AA REIT posted increased revenue and net profit for the third quarter ended Dec 31, 2020 (3Q FY2021) with gross revenue up 9.1% and net property income up 2.0% compared to 3Q FY2020. We announced a Distribution Per Unit (DPU) of 2.05 cents for the quarter, a 2.5% increase from the preceding quarter.
Our proactive leasing efforts has also translated into the completion of 21 new and renewal leasing deals during the quarter, with above-industry portfolio occupancy rate of 95.7%. Our Weighted Average Lease Expiry (WALE) stood at 3.94 years
in 3Q FY2021.
Our stable performance over the years is underpinned by proactive asset management strategies and the portfolio’s diversity in tenant and asset mix, with over 50% (by gross revenue income) in the resilient logistics and warehouse sector.
With a gradual global economic recovery from the Covid-19 pandemic expected in 2021 — backed by concerted vaccination campaigns and government financial support worldwide — AA REIT remains steadfast in its focus on proactive portfolio and lease management, maintaining a healthy balance sheet, and prudent financial discipline.
2. How has AA REIT’s portfolio evolved since IPO to-date and how will it change going forward?
The REIT made its debut on the Singapore Exchange in 2007, with an initial portfolio value of $316.2 million consisting of 12 industrial properties in Singapore. Since then, our portfolio value has grown to $1.7 billion as at Dec 31, 2020.
AA REIT has since expanded its portfolio to 28 properties in Singapore and Australia. In January, we announced the proposed acquisition of a light industrial facility asset, Sime Darby Business Centre at 315 Alexandra Road — which marks AA REIT’s first acquisition in the city-fringe area — where such assets are tightly-held amongst owners and investors. Upon completion, the acquisition will bring the REIT’s portfolio to 29 properties.
3. Can you provide a breakdown of the REIT’s asset mix in its Singapore and Australia portfolios? What would you maintain or change in terms of this mix?
During the Covid-19 pandemic, we recorded an increase in tenant demand for logistics and warehouse facilities which we expect to continue given shifts into e-commerce and manufacturing activities. We will continue to pursue accretive investments, developments
and/or built-to-suit opportunities in our target markets of Singapore and Australia, to grow the overall portfolio. If opportunities arise, we will also consider further addition of non-logistics assets. This will enable AA REIT to have a more stable and diversified portfolio that would provide sustainable returns to our unitholders.
4. Describe AA REIT’s capital management strategies. How will AA REIT manage its debt profile and ensure the sustainability of its distributions?
We take a prudent and disciplined approach to capital management. AA REIT has access to diversified sources of capital, including the equity and debt capital market and perpetual securities. We maintain strong and healthy banking relationships with financial institution partners. The Manager’s capital management strategy is characterised by proactive refinancing of AA REIT’s debts ahead of their ma-
turities; maintaining a staggered debt maturity profile to minimise refinancing risk in any one year; and substantially hedging interest rate exposures.
As at Dec 31 last year, our aggregate leverage was 34.1%, which is well within the regulatory limit of 50%, providing us with more than
adequate debt headroom to manage our capital structure.
5. What are the key focus areas for the REIT in the next two to three years?
AA REIT remains focused on the continued execution and evaluation of yield accretive investment opportunities in both Singapore and Australia. We believe that quality assets are fundamental to the REIT’s long-term per- formance and strive to acquire properties which will enhance the overall value of the portfolio. We also undertake asset enhancement initiatives to unlock assets’ value. We have been actively evaluating asset enhancement opportunities, such as maximising untapped plot ratios and refurbish- ing older assets, to ensure they remain contemporary and relevant. We also actively engage tenants on their busi- ness needs regularly and will explore asset enhancement opportunities in line with their requirements.
6. Does AA REIT plan to use inorganic means (like asset acquisitions) to grow its asset portfolio? What are the key criteria for this strategy?
Asset acquisitions, built-to-suit developments and asset enhancement initiatives are key pillars of our three-pronged strategy to drive the growth of the portfolio, underpinned by a prudent and disciplined approach to capital management and proactive asset management. We actively review acquisition deals, including overseas assets, data centres, logistics and business park assets, and long land lease assets. We have stringent criteria for acquisitions with the overarching aim of driving long term sustainable returns to the unitholders. We can also undertake built-to-suit opportunities to tailor to the operational needs of tenants and prospects.
7. In January, AA REIT proposed the acquisition of Sime Darby Business Centre, the REIT’s first in a city-fringe area. Together with the acquisition of 7 Bulim Street made last year, what significance do these acquisitions have for its future growth outlook?
The proposed acquisition of Sime Darby Business Centre along Alexandra Road and the newly acquired property at 7 Bulim Street are significant developments for AA REIT. They reaffirm our growth strategy of seeking yield accretive opportunities in the in- dustrial and light industrial markets amidst challenging market conditions.
To strengthen our portfolio for the long-term, AA REIT will continue to explore such accretive investment opportunities and focus on asset enhancement initiatives. This is aligned with our objectives of providing stable and regular distributions as well as achieving long-term capital growth for our unitholders.
8. What is the outlook for logistics and warehouse segments in Singapore and Australia amidst the Covid-19 outbreak?
With global vaccination campaigns, concerted government policies and Singapore moving into Phase Three of reopening, we anticipate business activity to pick up and a recovery of the overall economy. We believe that the industrial outlook for Singapore and Australia will continue to be supported by shifts in consumer behaviour towards e-commerce and increased business activities in the advanced manufacturing and information and communications technology (ICT) industries.
We are cautiously optimistic on the Singapore and Australia industrial, logistics and warehouse sector due to their resilience compared to other property sectors. Furthermore, the Singapore government in January 2021 announced a new 10-year plan to grow the manufacturing sector by 50% and maintain its contribution of about 20% of the country’s GDP, further propping up the outlook for the industrial and logistics sector in Singapore.
9. ESG has increasingly been a key focus. What are some of AA REIT’s ESG strategies and how is the REIT committed to sustainability?
AA REIT is committed to incorporating ESG factors in our strategy and operations, to ensure long-term sustainable returns for unitholders. Our ESG focus areas include improving and minimising environmental impact; promoting inclusive and sustainable economic growth; understanding and serving interests of all stakeholders; and ensuring a robust governance framework.
In 2017, we established a Sustainability Council (SC) to oversee and manage our efforts to incorporate sustainable practices into our business. The SC is responsible for the ongoing review and assessment of relevant and material ESG topics related to daily operations, as well as the selection of key performance indicators and targets.
We have been a participant in the annual Global Real Estate Sustainability Benchmark (GRESB) assessment since 2014 to provide an objective standard in engagement with our stakeholders. An independent GRESB scoring bench- mark provides a consistent and effective way of communicating sustainability track record and performance.
AA REIT also continually incorporates ESG elements within our assets such as including water saving and energy saving initiatives. As a testament to our ESG efforts, our latest completed redevelopment projects at 3 Tuas Avenue 2 and NorthTech are Building and Construction Authority (BCA) certified. Additionally, nearly half of our portfolio by net lettable area are BCA green mark compliant.
We also received the Gold Award at The Asset ESG Corporate Awards 2020 for the fourth consecutive year, a testament to our continued efforts and achievements in building a sustainable business.
10. What is the REIT’s value proposition to its shareholders and potential investors?
Our value proposition to unitholders is our ability to provide them access to the highly resilient industrial sector in Singapore and Australia, especially amidst the current Covid-19 situation. We will remain vigilant and prudent in our approach of growing our portfolio, as seen in the two acquisitions of quality assets made in the past six months. We will also focus on accretive opportunities to proactively manage the portfolio to protect the long- term value for unitholders.
Candace Li is a research analyst with the Singapore Exchange
