AIMS APAC REIT: Active asset management driving earnings
- FY25 DPU of 9.60Scts is ahead of our forecasts, mainly driven by strong rental reversions
- Strong positive rental reversions of +20% in FY25, but expected to normalise going forward
- SGD32mn of AEIs to be completed in 1H FY26 the next earnings catalyst
- Maintain BUY with unchanged TP of SGD1.55
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Stronger revenues and NPI driven by organic growth. For FY25, revenue grew by 5.3% y/y, while NPI rose by 2.1% over the same period. This growth was largely driven by strong positive rental reversions achieved over the past year, supported by proactive asset management initiatives across the portfolio. Although financing costs have increased, mainly due to a higher interest rate upon refinancing, the robust growth in organic revenue has more than offset the rise in interest expenses, resulting in a net positive impact on earnings.
FY25 DPU of 9.60Scts is 2.6% higher y/y. The robust operating performance, coupled with effective cost containment measures, resulted in a 2.6% y/y increase in DPU. FY25 DPU came in at 9.60Scts, exceeding our earlier projections, largely due to better-than-expected rental income. Additionally, AAREIT successfully recovered a further c.SGD1.8mn in insurance claims related to the fire incident at 61 Yishun Industrial Park A during the year.
Portfolio occupancy remains healthy at 93.6%. Portfolio occupancy declined by 0.9ppt q/q, primarily due to transitional vacancies from lease expiries. Despite this, overall occupancy remains at a healthy level. Excluding properties that are currently undergoing AEIs, the occupancy rate would have stood at 95.8%. Furthermore, a new lease signed after the end of March is expected to bring portfolio occupancy up to c.96.1%. This lease is likely for a logistics property – this segment continues to benefit from healthy rental growth and resilient demand.
Looking ahead, c.21.7% of leases are due for renewal in FY26, with the bulk of these coming from the logistics and warehouse segment. While demand remains generally stable, ongoing economic uncertainties have begun to weigh on tenant sentiment, and leasing activity appears to have normalised and slowed compared to previous periods of elevated demand.
Another year of strong positive rental reversion of +20%. Although rental reversions in 4Q25 moderated to 15.5% q/q, it remained robust, marking another quarter of strong double-digit positive reversions. For the full year, AAREIT achieved an impressive average rental reversion of c.+20%. The logistics and warehouse segment continued to be the primary driver.
Looking ahead, rental reversions are expected to remain positive, although the pace of growth is likely to slow. This moderation is attributed to ongoing economic uncertainties and the fact that AAREIT’s passing rents have been gradually catching up with current market asking rents. The strongest reversions were recorded for leases signed during the COVID-19 period, but the number of such leases is now tapering off, as most have already undergone at least one renewal cycle since the pandemic.
Singapore portfolio valuations remain strong, while some losses reported in Australia. The overall portfolio valuation declined by c.SGD33.1mn y/y, representing a c.1.5% decrease. This decline was largely attributed to the Australian portfolio, where cap rates continued to expand throughout the year. Additionally, currency translation losses contributed significantly to the drop in valuation, accounting for roughly one-third of the total decline. The remaining decline in the Australian portfolio was primarily driven by cap rate expansion, which ranged between 60-100 bps over the year. Looking ahead, there are signs that cap rates may have reached their peak. With further potential interest rate cuts by the Reserve Bank of Australia (RBA), the market may begin to see cap rate compression, which could help support or even lift portfolio valuations moving forward.
Healthy capital management metrics with 10bps improvement in borrowing costs. Overall borrowing costs improved by 10bps q/q to 4.3%, primarily driven by the lower cost of floating rate loans. Gearing currently stands at 28.9%, a figure that reflects the pre-emptive issuance of perpetual securities (perps) in March 2025. The SGD125mn raised from this issuance has been temporarily used to repay existing loans but will be drawn down again to redeem the 5.65% perps maturing on 14 August 2025.
While the pre-emptive issuance results in a short-term negative carry estimated at around SGD0.2mn, it will ultimately lead to approximately SGD1.2mn in annual interest savings once the more expensive tranche of perps is redeemed. Taking into account the estimated SGD25mn in CAPEX for AEIs in FY26, along with the upcoming redemption of perps in August, gearing is projected to stabilise at around 35%. This level still provides AAREIT with substantial debt headroom to undertake further AEIs or pursue acquisition opportunities.
Although aggregate leverage has temporarily improved, the broader debt ratio – defined as (debt + perps) over total assets – increased slightly to 52.1%. This uptick is due to the temporary rise in perps and the decline in overall asset valuations.
Our views
AAREIT's strong operating performance has come as a positive surprise, with robust rental reversions flowing through to revenue growth and more than offsetting the impact of higher borrowing costs. With continued positive rental reversions anticipated, alongside a relatively stable portfolio occupancy supported by an increasing proportion of master leases, we remain optimistic about AAREIT’s near-term prospects.
Looking ahead, the two ongoing AEIs at 7 Clementi Loop and 15 Tai Seng Drive are expected to be completed in the first half of FY26. These projects are projected to deliver NPI yields in excess of 7.0%, further enhancing income resilience and portfolio value. From a capital management standpoint, both gearing and borrowing costs appear to have stabilised at healthy levels. A key milestone will be reached in mid-August 2025, when the existing 5.65% perps are replaced with a lower cost 4.70% issuance, resulting in annual interest savings of c.SGD1.2mn.
The upcoming 21.7% of leases expiring in FY26 will also be a key factor in determining the earnings trajectory. Although economic uncertainty has created a dent in demand in the near term, we believe that continued strong positive rental reversions will help offset most if not all of the weakness from leasing demand. Moreover, with inflation easing and no loans due for refinancing until November 2026, we believe that costs will remain well contained in FY26.
We have revised our forecasts to reflect stronger portfolio rental income, the benefits from the upcoming perps replacement, and the planned divestment of 3 Toh Tuck Link (at a 32.5% premium to valuations). As we roll forward our valuations, we have also raised AAREIT’s WACC as a result of lower targeted leverage ratio in the long-term. As such, we maintain our BUY recommendation on AAREIT with an unchanged TP of SGD1.55.
FY Mar | 2H2024 | 1H2025 | 2H2025 | % chg y/y | % chg h/h |
Gross revenue | 90.5 | 93.5 | 93.1 | 2.9 | (0.4) |
Property expenses | (23.8) | (25.9) | (27.0) | 13.5 | 4.0 |
Net Property Income | 66.7 | 67.6 | 66.2 | (0.8) | (2.1) |
Other Operating expenses | (7.2) | (7.7) | (9.9) | 36.6 | 28.1 |
Other Non Opg (Exp)/Inc | (0.9) | (1.5) | 0.41 | nm | nm |
Associates & JV Inc | (32.2) | 7.39 | (25.6) | 20.5 | nm |
Net Interest (Exp)/Inc | (17.3) | (19.4) | (17.7) | (2.6) | 8.7 |
Exceptional Gain/(Loss) | 0.0 | 0.0 | 0.0 | - | - |
Net Income | 9.10 | 43.7 | 14.2 | 56.4 | (67.4) |
Tax | 6.61 | (0.7) | 5.05 | (23.7) | nm |
Minority Interest | 0.0 | 0.0 | 0.0 | - | - |
Net Income after Tax | 5.44 | 32.8 | 8.83 | 62.5 | (73.1) |
Total Return | 11.4 | 30.1 | (0.1) | nm | (100.2) |
Non-tax deductible Items | 45.8 | 28.5 | 58.7 | 28.2 | 105.9 |
Net Inc available for Dist. | 57.2 | 58.7 | 58.7 | 2.6 | 0.0 |
Ratio (%) |
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Net Prop Inc Margin | 73.7 | 72.3 | 71.0 |
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Dist. Payout Ratio | 100.0 | 100.0 | 100.0 |
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