REIT Spotlight is a series where I challenge myself to review every single S-REIT (monkaS) on the SGX in alphabetical order. This is part of my efforts to build a REIT database for myself, which I may share with you all some time down the road. Wish me luck XD
In today’s edition, I will focus on AIMS APAC REIT (AA-REIT), a Singapore focused industrial REIT that has been listed on the SGX since 2007.
AA-REIT has had a long and checkered history since listing. Here is the long version 😛
Aggressive Beginning
AA-REIT initially IPO-ed in 2007 as MacarthurCook Industrial REIT (MI-REIT) at a listing price of $1.20 (Approximately $3.30 in current share price terms). Management had an aggressive acquisition schedule, embarking on a debt-fueled acquisition spree in their debut year. This led to a 75% increase in portfolio size. It also committed the REIT to acquire a property asset (1A International Business Park “1A IBP”) due to be completed in 2009.
Troubles begin
However, as we all know, the GFC hit in 08/09. A serious lapse in judgment on capital management caused the REIT to need to refinance almost its entire loan facility of $220.8 million in April 2009, a time where credit had dried up for the REIT and its sponsor, MacarthurCook Ltd.
Also, management also brilliantly committed to acquire 1A IBP without securing the required financing first. This meant MI-REIT needed to add another $90.2 million to the amount of financing needed, which was due in late 2009.
In short, MI-REIT was screwed and was forced to look for a white knight to rescue it or face bankruptcy.
Dark Knight Rises
In times of distress, cash is king. This was evident here as the REIT was only able to find 2 opportunistic Australian fund managers – AIMS Financial Group and AMP Capital Group. They were willing to invest in the REIT only if the REIT tabled a highly dilutive private placement offer to them.
Facing no better alternative, the offer was accepted in late 2009. Shortly after the private placement, a 2-to-1 rights issue was called as well to raise further funds from unitholders, which was also at massive discounts to NAV. These events led to an absolute collapse in the REIT’s unit price.
Simultaneous to this re-capitalisation exercise, AIMS and AMP bought over the REIT Sponsor MacarthurCook Ltd, leading to the renaming of MI-REIT to AIMS AMP Capital Industrial REIT.
Nicholas McGrath as CEO
Amidst all the drama discussed earlier, Nicholas McGrath was appointed CEO of MI-REIT in November 2008, replacing MacarthurCook founder Craig Dunstan. His resume carried a significant blemish, with his immediate prior position being CEO of Allco Commercial REIT (Now known as Frasers Commercial Trust), a REIT that needed help from Frasers Centrepoint Ltd due to debt troubles.
In spite of this, the new owners AIMS and AMP kept him on as CEO of the manager until he moved on to AMP Capital in 2014.
Under his reign, acquisitions came thick and fast following the takeover, with 4 industrial properties from AMP Capital Business Space REIT acquired in January 2010. This was quickly followed by a significant acquisition of 27 Penjuru Lane for $161m which had a 7-20 rights issue accompanying the acquisition in October 2010. February 2011 saw another acquisition of 29 Woodlands Industrial Park E1 for $72m, which was partly funded by a massive private placement.
FY2012 saw the launch of a 1 for 5 unit consolidation and the redevelopment of 20 Gul Way, which was funded by debt and a private placement to CWT Limited, the master lessee of the property.
Fast forward to FY2014 where AA-REIT moved into the Australia market with an acquisition of the 50% interest in Optus Centre in New South Wales. FY2014 also saw yet another rights issue at 7 for 40 units, raising $100m for future growth opportunities.
Koh Wee Lih as CEO
Shortly prior to the closure of the Optus Centre acquisition, Koh Wee Lih was appointed as CEO.
Under his reign, the REIT’s voracious equity fund raising efforts seemed to die down. Instead, the REIT focused on utilising its significant debt headroom to fuel redevelopment works, asset enhancement initiatives and greenfield developments to build value.
As far as I could tell, there was only 1 equity fundraising since he took over the reigns. This was a private placement conducted by the REIT in FY2018, raising $55m to reduce the REIT’s debt levels.
Dropping a partner
Early this year, AIMS Financial Group bought out their partner AMP Capital to become the sole sponsor. This resulted in the renaming of the REIT to its current name – AIMS APAC REIT.
Property Portfolio
The property portfolio consists of 25 properties in Singapore and 50% interest in 1 property in Australia. Of the 25 Singapore properties, one is still undergoing development.
Operational Highlights
As at
31 Mar 2019
Portfolio Breakdown
The portfolio is largely multi-tenanted, with 34.1% of leases being master leases to 3rd parties.
Top 10 Tenants
The portfolio is fairly concentrated, with the top 10 tenants accounting for more than half of the portfolio’s gross rental income.
Lease Expiry Profile
The REIT has a weighted average lease expiry of 2.59 years.
The REIT has averaged a weighted average lease expiry of 3.4 years since IPO.
Occupancy Trends
The REIT has consistently maintained occupancy above 90%, with the softness in the Singapore industrial property market driving down occupancies in recent years.
Financial Highlights
As at
31 Mar 2019
Net Property Income / Distributable Income
Property Yield
DPU History
The REIT has consistently grown DPUs since 2010 when AIMS and AMP took over, while DPUs stagnating from 2015. This is probably due to continued softness and oversupply in the industrial property space in Singapore.
Price to Book
The REIT has done relatively well to regain the confidence of the market by expanding P/B to now trade close to P/B of 1.0.
Management
Fee Structure
Nothing too unusual here, good to see that performance fees are structured to align with DPU growth, aligning the manager to unitholders interest to some extent.
Sponsor Ownership
Based on the latest Annual Report as at 31 March 2018, AIMS Financial Group holds about 7.58% of AA REIT while AMP Capital Group owns about 10.23%. If AMP Capital sold their stake to AIMS Financial Group, this means AIMS about 17.81%.
This is a rather small percentage ownership, as such there is limited incentive to act in favour of unit holders. Something to bear in mind.
Competency
Current management has done a decent job of bringing the REIT back to decent valuations based on financial performance presented earlier. That said, they have not been able to improve the REIT further in the past few years partly due to a challenging environment. As such, I feel management is fair but not exceptional.
My Thoughts
Having gone through over 11 years of annual reports, I’ve certainly learnt a lot about the REIT and its management. Although I own the REIT, I didn’t research the REIT to this extent.
I get the sense that the REIT is a solid counter, with fair management. I see little to no growth drivers for this REIT, given the oversupply in industrial properties in Singapore and the potential systemic decline in the Singapore manufacturing industry. Main risks to this REIT include minimal management alignment with unitholders and Singapore warehouse industry decline.
Overall a fair REIT that I would only add to my position with a decent discount to book value.
Updated: AIMS APAC REIT Dashboard
Other REIT related posts
Keppel-KBS AGM
Keppel-KBS AGM Follow-up
Capitaland Mall Trust AGM
If you missed my previous post
Investment Quadrant Course Review
Happy Hunting,
KK
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Thank you for the great and detailed write up for AA reit.
Glad you liked it 🙂