Aims Apac REIT (SGX: O5RU)'s Conserves Cash Due To Covid-19



Aims Apac REIT (SGX: O5RU) has recently announced its forth quarter financial results. It is currently trading at 7.8% yield based on the last traded share price of $1.22 on 22 May.


Key Highlights:


  • Distribution per unit (DPU) and Dividend Yield (7.8%)

  • Price to book ratio (0.9)

  • Gearing (34.8%)

  • Interest coverage ratio (4.3x)

  • Portfolio occupancy rate (89.4%)

  • Growth catalyst


Background of Aims Apac REIT


AIMS APAC REIT is a real estate investment trust listed on the Singapore Stock Exchange with the investment mandate to invest in high quality income-producing industrial real estate throughout the Asia Pacific.


1. Distribution per unit and dividend yield


In its latest fourth-quarter results, DPU was down by 27.3% year-on-year, partly was because the REIT retains a SGD2.9m capital during this Covid-19 period. Net property income was up 0.9% to SGD 20.5m, supported by its strong and diversified tenants base. Aims Apac REIT delivered a healthy fourth-quarter operational performance. Based on its latest price, the REIT is currently trading at about 7.8% dividend yield.


Historically, the REIT has been trading at an average yield of 8.3%. Its current yield of 7.8% is below its historical average.


Aims Apac REIT's Yield Trend

2. Price to book ratio


Over the past 10 years, Aims Apac REIT has been trading at an average price to book ratio of 0.93. The recent correction has brought down its price to book slightly to 0.9.


Aims Apac REIT's Price to Book Ratio


3. Gearing


Portfolio leverage remains conservative at 34.8%, which gives Aims Apac REIT an ample debt headroom for future growth and acquisitions.


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4. Interest coverage ratio


The REIT has an interest coverage ratio of 4.3 times, which is slightly above our preference of 4 times. Besides, the REIT maintains an overall interest cost of 3.5%, with more than 81% of its debt pegged to fixed rate. Besides, Aims Apac REIT has received pre-commitment from its lenders to refinance a four-year term loan of $100m and a three-year term loan of A$32.5m. Post refinancing, the REIT will not have any debt for refinancing till Q4 2021.


5. Portfolio occupancy rate


Portfolio occupancy remains high at 89.4%, which is slightly outperforming the JTC's occupancy rate. During the quarter, the REIT managed to secure 22 new and renewal leases, making up 4.6% of its total net lettable area. The weighted lease-to-expiry is extended to 4.3 years from 4.01 years previously.


Aims Apac REIT's Occupancy Rate vs JTC's Occupancy Rate (Source: Aims Apac REIT's Presentation Slide)


6. Growth Catalyst


Fortunately, there is minimal impact on its operations during this circuit breaker period. More than 50% of the tenants in Singapore are classified as essential services, which are allowed to remain in operation.


However, the management expects its tenants to become more risk-adverse due to the Covid-19 outbreak. Thus, the management is committed to proactively manage the properties and leases during this period. In the meantime, the manager will continue to focus on prioritising critical AEIs and actively implementing cost savings on operating expenses.



Summary


In the near term, we would expect some volatilities and the DPU is likely to be affected for the next two quarters. While the key financial metrics of the REIT still remain very healthy, we are cautious on its declining DPU over the past three years.



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