Saturday, 11 March 2017

A Peon Analysis - AIMS AMP Capital REIT

AIMS AMP Capital REIT (AA REIT) is one counter which I have been eyeing for a seriously long time but have not undertake any concrete steps to study it.

And here's the "whys" in case you are wondering why did it fall into my radar in the first place:

1) NAV of $1.477 is some 9.41% higher than current market price of  $1.35.

2) Yield of 8.31%

3) Relatively low gearing at 34.6%

4) A portfolio of well designed, well located and sector-specific (logistic, industrial) properties; with higher than average occupancy.

With the above factors establish, I shall delve into the nitty-gritty and boring process of studying it now:(

#noworknomoney #nomoneynohoney

REIT Analysis Checklist 

 


Stockcode: O5RU.SI

Financial Analysis

1) Is the Purchase price lower or equal to Net Asset Value Per Share (NAVPS)?

Remarks: Purchase Price=$1.36,   NAVPS=$1.477,   Discount=9.41%


50% lower than NAVPS
40%-50%  lower than NAVPS
30%-40%  lower than NAVPS
20%-30%  lower than NAVPS
10%-20%  lower than NAVPS
<10%  lower than NAVPS
Score Awarded
Score
12
10
8
6
4
2
2



2) Is the Gearing below 36%? 

Remarks: Gearing ratio = 34.6%


Gearing Ratio more than 40%
Gearing Ratio 36%-40%
Gearing Ratio 31%-35%
Gearing Ratio 26%-30%
Gearing Ratio 20%-25%
Gearing Ratio less than 20%
Score Awarded
Score
6
8
10
4
2
0
10



3) Loan profile. (No. and types of lenders,  loan maturity, interest cover ratio, loan denominated in which currency, etc) 

Remarks: Total Borrowing of S$518.6 mil. S$130.1mil due in FY2018, S$208.5mil due in FY2019, S$80mil due in FY2020 and the balance S$100mil due beyond FY2021.

S$90.3mil uncommitted revolving credit facilities (RCF) available.

Interest Cover Ratio of 5.1 times.

It appears that current cash and equivalent of $8.9mil will be sorely insufficient to cover the upcoming repayment of S$130.1mil due in FY2018 (Nov'17) and there are no news on the refinancing options as of now.


Strong 
Neutral 
Weak
Score Awarded
Score
5
2.5
0
0



4) Yield Per Year?

Remarks: Based on purchase price of $1.35 and FY2017 DPU of $0.1103, Yield = 8.17%


Yield more than 8%
Yield between
6% - 7.9%
Yield between
5% - 5.9%
Yield between
4% - 4.9%
Yield between
3% - 3.9%
Yield less than 3%
Score Awarded
Score
12
9
6
4
2
0
12



5) Any financial engineering involved to boost income?

Remarks: I did not manage to uncovered any financial engineering (income support etc.).


Yes 
No
Score Awarded
Score
0
3
3



6)Are the foreign currency risk sufficiently hedged?

Remarks: Received incomes in both SGD and AUD, as well as possessing loans that are denominated in both AUD and SGD also. 

Nonetheless, it is not a big cause of concern as the exchange rate between AUD and SGD have remained relatively stable over the last couple of years.


Yes 
Not Applicable
No
Score Awarded
Score
5
5
0
5



7) Did the DPU improve for the last 5 years?

Remarks: FY2017-$0.1103   FY2016-$0.1135    FY2015-$0.1107
                  FY2014-$0.1053   FY2013-$0.1072  


DPU improve for 5 out of 5 years
DPU improve for 4 out of 5 years
DPU improve for 3 out of 5 years
DPU improve for 2 out of 5 years
DPU improve for 1 out of 5 years
DPU improve for 0 out of 5 years
Score Awarded
Score
12
9
6
4
2
0
9



8) Is the receivables too excessive compared to ' Cashflow from Operations'?

Remarks: As of 31 Dec'16, Trade receivables are at $9,200,000 while based on FY2016 Annual report, Cashflow from Operations are at $74,628,000. Hence, receivables are 12.32% of cashflow.


Receivables <11% of Cashflow from Operations
Receivables 11% to 20% of Cashflow from Operations
Receivables 21% to 30% of Cashflow from Operations
Receivables >30% of Cashflow from Operations
Score Awarded
Score
6
4
2
0
4







Fundamental Analysis

9) Quality of Management

9a) Any directors with political connection?

Remarks: NIL


Yes 
No
Score Awarded
Score
2.5
0
0



9b) Any directors with banking background?

Remarks: Mr Eugene Paul (Citigroup, JP Morgan).


Yes 
No
Score Awarded
Score
5
0
5



9c) Any directors with outstanding relevant experiences with respect to the industry in which the Company is involved in?

Remarks: Mr George Wang (Real Estate, Fund Management), Mr Norman Ip (BCA, Securities Industry Council, Real Estate), Mr Eugene Paul (REIT)


Yes 
No
Score Awarded
Score
5
0
5



9d) If the Company has operations overseas, does the Company have any directors well-acquainted with the oveaseas' culture?

Remarks: Properties mainly in Singapore with a small portion in Australia. Mr Nicholas Paul and Mr George Wang is well acquainted with Australia, having spent a good part of their career there.


Yes 
Not Applicable
No
Score Awarded
Score
2.5
2.5
0
2.5



10) Quality and diversity of tenants

Remarks: 43.5% of rental incomes are derive from tenants from the logistic and warehousing sector, representing a huge concentration within this sector. The balance rental incomes are obtained from tenants from various sectors, with non exceeding more than 18%.

However, I am of the opinion that the concentration in the logistic and warehousing sector is not a weakness but a strength instead. This is given Singapore positioning as a logistic hub, with a world class seaport and airport facilities, as well as the increasing popularity for global shipping of goods (online purchase, etc). Although there are definitely headwinds ahead, but I believe that Singapore position as a shipment hub will continue to stay in the near future as we play to our strength (efficiency, location, punctuality, etc) while we sail with the growth story in the logistic industry.

On another note, their tenant, CWT Limited, contribute 22.6% to AA REIT income and this situation is worth monitoring as they have a rather huge direct impact on AA REIT performance should the situation changes.


Strong 
Neutral 
Weak
Score Awarded
Score
2.5
1.25
0
2.5



11) Quality of lease (WALE, rental escalation, etc)

Remarks: Current WALE is only 2.49 years and starting from FY2018, there will be a further tenants' lease expiry of 29.6%, with a further 17.7% in FY2019. This will be occurring during a period of oversupply in industrial/logistic space while enduring poor demand due to the slowdown in the manufacturing  sector.

Due to this poor economical climate, it is hence not surprising to see that the average rental revision for the last quarter was in the negative territory (-13.6%).


Strong 
Neutral 
Weak
Score Awarded
Score
2.5
1.25
0
0



12) Occupancy level (in comparison to industry average)

Remarks: Not much to be said. Solid.

At current level (3Q FY2017), it outperform the industrial average regardless of whether it's the overall occupancy or by the various property profile (warehouse, industrial, Office Park, etc).


Strong
Neutral
Weak
Score Awarded
Score
5
2.5
0
5



13) Type and duration of property lease.

Remarks: Once again, very solid with an average unexpired land lease of 38.7yrs and with more than 71.5% of the lease expiring more than 30yrs from 31 Dec'16 onwards.

At current yield of 8.17%, return on capital deployed will be between 12 to 13 years, thereby proving me with free money annually for at least 25 more years!


Strong 
Neutral 
Weak
Score Awarded
Score
5
2.5
0
5



14) Is the market sector in which the Company is involved in, currently on a uptrend, stagnant or on a downtrend?

Remarks: I wanted to say that the market that AA REIT is in looks pretty bad. But on second glance, it doesn't look all that shabby for AA REIT at all!

For a very detailed report on the outlook, you may wish to refer to their FY2016 Annual Report (Pg46 onwards).

But lucky you! I'm not feeling lazy so I'm going to summarise some of my findings.

Firstly, although the industrial properties are facing some pressure from an oversupply (average 3.9mil sq ft of supply every year, estimated to last until FY2021), we have to bear in mind that such space only constitute  26.4% of AA REIT's portfolio.

On the other hand, logistic properties constitute a 53.2% of AA REIT's portfolio and yet the oversupply of logistic space is estimated to end by FY2018, providing an opportunity for upside after FY2018.

Similarly, although business space takes up 20.4% of AA REIT's portfolio, the oversupply is estimated to stop by this FY and hence providing upside after this FY. Then again, business park is not a huge portion of AA REIT assets.

All in all, due to various segment that AA REIT has its' hands in, it is not adversely affected or gaining from the various situations.


Uptrend
Stagnant
Downtrend
Score Awarded
Score
2.5
1.25
0
1.25



15) Are the economies of the countries in which the Company has operations in, currently on a uptrend, stagnant or on a downtrend?

Remark: Singapore economic growth for 2017 will remain within the same range as 2016, which is in the low 1% to 3%.

For Australia where AA REIT has some presence in, the GDP forecast is also expected to be rather muted. Then again, Australia only contributes about 12% to AA REIT income, so I will apply heavy discount to their contribution to AA REIT results.

Overall, both economies are expected to grow. But at such low rate of growth, it's kinda like watching paint dry (boringggg).


Uptrend
Stagnant
Downtrend
Score Awarded
Score
2.5
1.25
0
1.25



Total Score Awarded = 72.5 out of 100 Points



With a score of 72.5, I am actually rather comfortable with nibbling at AA REIT at its' current price without losing a great deal of sleep if it tanks.

Should the price falls again later this year, I will consider making another tranche of purchase provided that its' fundamental remains the same.

Heh.. I used "I" a lot in this blogpost. So please take note that all the comments above are basically my own opinion only. All the best in you forming your own :D

Ciao~

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