AIMS APAC REIT (AA REIT) has distinguished itself by achieving remarkable y-o-y growth and delivering stable returns to its unitholders. These achievements have been accomplished with the backdrop of significant challenges for REITs, that include rising interest rates and inflationary pressures on operating costs, creating headwinds across the sector. Amidst these pressures, many of its peers in the industry reported y-o-y declines in distributions, falling portfolio occupancies and heightened gearing ratios.
AA REIT’s total assets are valued at $2.16 billion and comprise 28 properties across Singapore and Australia. It reported an impressive 97.8% portfolio occupancy for FY2024 ended March 31, one of the highest among Singapore REITs. For the same period, AA REIT recorded $177.3 million in revenue, a 5.9% y-o-y increase. Net property income increased 6.9% to $131 million, and distributions to unitholders rose by 3.8%, reaching $74.3 million. With these exceptional results, AA REIT clinched the “Highest Returns to Shareholders over three years (Real Estate)” award in this year’s Billion Dollar Club.
According to Russell Ng, CEO of the Manager of AA REIT, its steady and resilient performance over the last few years is not the result of any “secret sauce” but rather the adoption of a consistent, disciplined and forward-looking approach. AA REIT combines prudent capital and risk management with a strategic portfolio curation that prioritises long-term value creation. This strategy is executed through asset enhancement initiatives (AEIs), re-developments, selective acquisitions and new partnerships.
Long-term value creation through AEIs and development projects
One of AA REIT’s key differentiators is its ongoing focus on portfolio rejuvenation through AEIs and redevelopments. Rather than relying solely on new acquisitions to grow, AA REIT consistently invests in and upgrades its existing properties to improve building specifications.
Under this strategy, AA REIT seeks to reposition an asset’s look and feel by targeting improvements ranging from “hard works” involving upgrades to building façades and building services, and adding new floor space, to “soft works” comprising refurbishment of common areas and amenities to improve tenant experiences.
Demonstrating AA REIT’s proactive management approach, the team has completed several AEIs properties in Singapore as well as Australia. For example, at 26 Tuas Ave 7, the REIT carried out electrical upgrading works for the building, which resulted in a 10-year lease extension by tenant Aalst Chocolate, a Cargill subsidiary.
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Similarly, AA REIT’s data centre tenant at 23 Tai Seng has “grown into” the building over the years, with the asset experiencing extensive upgrades in a collaboration between AA REIT and the tenant which both invested capital in upgrading the facility and amenities. The asset today boasts a Green Mark platinum certification and has a balanced lease term of around six years on a triple net basis, further enhancing the asset’s value.
Ng: Many of our past AEIs and redevelopments have led to long-term leases with several of our master and anchor tenants, who are leaders in their respective industries. This is where the value is created. Photo: Albert Chua/The Edge Singapore
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In Australia, AA REIT signed a 12-year lease extension, expiring in 2033, for its Optus Centre business park in Sydney. As part of the lease extension, AA REIT, along with its joint-venture partner, upgraded the common areas, amenities and building services. Focusing on AEIs has been instrumental for AA REIT to drive higher rental income and improve occupancy rates across the portfolio.
As for its developments, AA REIT has completed over 2.8 million sq ft of new space through six developments. Four of these developments are ramp-up logistics properties, while the rest are purpose-built industrial facilities. A key point about ramp-up buildings is that they have almost been fully occupied since completion, Ng says.
This is due to the easy direct access that ramps provide for heavy vehicles to units at every floor of the asset, which maximises efficiency of operations. This focus on developing ramp-up logistics properties has helped drive the REIT’s high portfolio occupancies and strong rental growth.
As a testament to the success of its strategy, AA REIT achieved a 24.3% rental reversion for FY2024 — a continuation from the 18.5% rental reversion recorded for FY2023 — one of the highest in the sector. AA REIT’s portfolio weighted average lease expiry also extended to 5.1 years, up from 4.4 years in the prior year. According to Ng, these outcomes are a direct result of AA REIT’s forward planning, execution capability and proactive tenant engagement.
“Many of our past AEIs and redevelopments have led to long-term leases with several of our master and anchor tenants, who are leaders in their respective industries. This is where the value is created,”CEO Ng says.
Meanwhile, AA REIT has untapped development potential of up to 500,000 sq ft and 1.5 million sq ft of gross floor area in Singapore and Australia, respectively. “So there is significant long-term development upside within the portfolio,” he adds.
To date, AA REIT has completed nine acquisitions totalling around $1 billion. Ng says the REIT is “meticulous” in selecting an asset to purchase and focuses on well-located, high-quality assets backed by creditworthy tenants with stable rental growth profiles. As property is a cyclical market, AA REIT tends to acquire assets only at a certain time of the cycle, he adds.
Strategic portfolio curation and proactive portfolio management
A critical aspect of the REIT’s success is its curated portfolio of logistics, industrial, high-tech and business park properties.
As of FY2024, just under half the REIT’s portfolio (by gross rental income) is derived from the logistics & warehouse segment. “The majority of our ramp-up logistics facilities are multi-tenanted and consist of shorter dated leases to align with the underlying customer contracts of third-party logistics companies,” says Ng. The warehouse space has also experienced a flight to quality since the pandemic and sustained demand for ramp-up facilities, which has been a growth driver for the REIT.
On the other hand, its business parks and hi-tech properties, which account for around a third of its portfolio, come with long-term leases to high-quality tenants which provide a solid foundation of stable and growing income for unitholders.
At present, the REIT’s tenancy is split almost equally — 58% are multi-tenancy and 42% are single-use master tenants. As of 4QFY2024, 98.1% of single-user leases have built-in rental escalations of 2% to 3.25% per annum.
This balanced portfolio provides AA REIT the chance to capitalise on positive rent reversions from the renewals of its multi-tenanted logistics and industrial properties while being anchored by stable and long-term tenancies. The segment diversification has also helped the REIT rise above periods when one segment underperforms another, demonstrating the REIT’s portfolio resilience.
AA REIT leases its properties to many leading local and multinational companies across advanced manufacturing, food production, data centre and life science sectors. Many of these companies have heavy investments in production, manufacturing and automated equipment and machinery in the facilities.
Meanwhile, AA REIT takes a disciplined approach to acquisitions in its core markets of Singapore and Australia and seeks to ensure that every asset acts as a foundational asset within the overall portfolio. Singapore accounts for around three-quarters of the portfolio’s gross rental income, with the rest from Australia. This careful asset selection approach serves to enhance AA REIT’s portfolio resilience and long-term growth stability.
George Wang, Chairman of the Manager of AA REIT, adds that these two markets that AA REIT operates in — Singapore and Australia — are also complementary to each other as they have different economic cycles and growth profiles. “Our investment in these two mature markets allows us to monitor and manage potential downturns in the respective countries and rebalance our portfolio,” says Wang.
“Property is a very local and cyclical business,” he adds. “Singapore is a small country with a lot of leasing activity and faster lease-up times. Australia, on the other hand, is a large country, so we like well-located assets on medium to long-term leases which are occupied by high-quality tenants.”
For its acquisition considerations in Australia, AA REIT also prefers assets that sit on large land sites. “If a site is rezoned and there is an increase in plot ratio to cater for higher-density residential, mixed or alternate uses, this can lead to significant development upside. Over the long term, Australian freehold assets offer such opportunities compared to Singapore leasehold assets,” says Wang.
For example, AA REIT’s two properties in Sydney, Optus Centre and Woolworths HQ, have been designated by the New South Wales state government as priority growth zones and earmarked for major infrastructure projects and new multi-storey residential developments. “Over time, we expect to see the underlying land value increase and provide future development upside given the scale of both sites. Optus Centre sits on a 7.6ha site and Woolworths HQ sits on a 9ha site,” adds Ng.
Similarly, AA REIT’s Boardriders Australian Headquarters in the Gold Coast is located on a 3.3ha site adjacent to a 11,000 sq m lifestyle retail centre and 36,000 sq m retail shopping mall, and may benefit from future conversion or development potential.
Wang: We always think in the long term ... This prudent and proactive approach helps us to monitor the market, mitigate potential risks and capture new opportunities as they arise. Photo: Albert Chua/The Edge Singapore
Prudent capital management provides flexibility and headroom for growth
One of the hallmarks of AA REIT’s strategy is its prudent capital management. Rather than pursuing aggressive acquisitions year after year, the REIT has adopted a more measured approach. By alternating between acquisition phases and periods of operational focus and organic growth, AA REIT has been able to maintain a strong balance sheet while continuing to grow its portfolio. As at the end of FY2024, AA REIT’s aggregate leverage stands at 32.6%.
AA REIT successfully completed an equity fund raising of $100 million in 1QFY2024, and divested a non-core asset, 541 Yishun Industrial Park A, at an 8.2% premium to valuation during the year.
“This gives us the headroom to continue funding our asset enhancements, redevelopment and pursue acquisitions if the opportunity arises,” says Ng.
Moreover, AA REIT has hedged 73% of its borrowings, providing protection against interest rate fluctuations while retaining flexibility to benefit from future rate cuts on the unhedged portion.
Another factor that has led to AA REIT’s consistent outperformance is “our long-term mindset”, adds Wang. “We always think in the long term — when interest rates are low, we are always thinking about when interest rates will rise, and vice versa. This prudent and proactive approach helps us to monitor the market, mitigate potential risks and capture new opportunities as they arise.”
Looking ahead
In the last two financial periods, AA REIT has spent most of its time focusing on AEIs which has given the REIT a high return on investments. With the declining interest rate trend coupled with strong fundamentals and growth drivers in its core markets of Singapore and Australia, Ng expects to see more opportunities on the horizon and says that “acquisition of quality industrial, logistics and business park properties are going to be a focus over the coming year”.
For Singapore, the nation has continued to benefit from sustained demand for modern industrial facilities from various manufacturing growth sectors, which are expected to persist, while key industrial players in the electronics, life science and aerospace industries continue to invest in the country.
In Australia, net population growth and continued infrastructure investments such as the extension of the metro lines across Sydney will bring more efficient access to Macquarie Park, where Optus Centre is located, and Bella Vista, where Woolworths HQ is located. Meanwhile, Brisbane and Gold Coast, where Boardriders HQ is located, are expected to benefit from the significant new infrastructure development over the coming years ahead of the 2032 Olympic and Paralympic games.
In addition, AA REIT is making strides on the environmental, social and governance (ESG) front. Last year, it completed phase one of its rooftop solar projects, which is one of the largest rooftop solar installations by a Singapore-listed REIT. AA REIT has completed the installation of enough panels to power 10.8 megawatts (MW) across six of its properties. This is equivalent to generating 14,500 MW of energy, which is the same as removing 5,900 tonnes of carbon emissions each year.
More recently, AA REIT announced its new unsecured sustainability-linked loan of up to $400 million and A$150 million ($140 million) to refinance existing debt and for general corporate purposes including AEIs and acquisitions, among others. “This new facility aligns with our sustainability goals, whilst providing AA REIT with a flexible capital structure to pursue growth opportunities,” says Ng.
Through disciplined and strategic growth, proactive asset management, prudent capital management and a commitment to sustainability, AA REIT remains a leading player in the industrial REIT sector, providing stable and sustainable returns for its unitholders over the long term.
