If you haven’t already notice, Mr Kua Simi likes to look at property related stocks. So here is another one for you. These few days I have been spending time reading up on different companies and breaking down their annual reports. Since now that we are stuck at home nothing to do right? So might as well keep looking at more companies. Better than doing this..
Or this…
What kind of properties does AAREIT have and where are they?
AAREIT focuses mainly in industrial properties in Singapore. They have a total of 25 properties in Singapore and 1 in Australia. Here is a nice picture of where all these properties are.
You can see those properties in Singapore are scattered all over the island in where you would expect industrial properties to be. In Australia the single property is located in Sydney and it’s rented to OPTUS.
Remember who owns OPTUS? If you said SingTel, you are correct! *Raises eyebrows* Hmm… someone parkat with someone?
How is their occupancy rates?
As shown are the occupancy rates. It is broken down into their Business Parks, Warehouses and Industrial buildings. The warehouse and industrial buildings not too good, showing some “weakness” at about 93% take up rate.
Here is the lease expiry profile. As shown above, a majority of their leases are due to expire in the next 2-3 years and it would be interesting to see if they are able to continue to secure/maintain their tenants at the same rental rates due to the current COVID-19. I won’t be surprised if rental rates start to dip due to the renewal of leases in such bad times.
What they do have going for them is that they have pretty diversified tenant profile. This should allow AAREIT to protect themselves from some of the above mentioned risk. What Mr Kua Simi is trying to say here, is that AAREIT should be able to continue to secure tenants through the next few years, with a possibility of losing some of that revenue due to declining demand / reduction in rental prices.
Let’s pull out those calculators and get down to some numbers
So what does their balance sheet look like? As shown below is their balance sheet. Pretty stable from year to year. Not much has changed.
However what kinda worries me, is that their current assets stand at $23million and their current liabilities are at $114million. That is a little like living on the edge man. Though they do have quite a bit of assets, it just seems a little like a cash flow problem just waiting to happen. Comment below if you think otherwise.
Their dividend good anot?
Here’s the history of the dividend payout for the last three years. One interesting thing to note is that the the DPU has been on a decline over the years even though their Net property income has somewhat remained stable.
At the time of writing, the price of AA REIT is at $1.14 SGD.
0.1025 ÷ 1.14 = 8.99%
The dividend percentage is at 8.99% assuming that the company maintains the same Distribution Per Unit (DPU). Something tells me that it will probably not remain the same over the next couple of years. Let’s assume a decrease of 20% in their DPU, that would equate to a 8.2cent DPU.
0.082 ÷ 1.14 = 7.19%
Though this is just based on an assumption of a decrease in DPU by 20% due to some of the factors previously mentioned, it gives us a certain level of margin of safety when considering our purchase. Would you accept a 7.19% ROI? Leave your comments below.
What is the PE ratio looking like?
Here is the EPS for 2019 at 7.3cents. So what is their PE ratio?
$1.14 (stock price) ÷ 0.073 (EPS) = 15.6
BUT once again, it’s important to note that the EPS account of adjustment to the Fair Value of their properties. So what does their PE ratio look like after taking into account this adjustment?
EPS = 66,580,000 (Earnings after adjustment) ÷ 685,794,000 (shares) = 9.7cents
PE = 1.14 (stock price) ÷ 0.097 (adjusted EPS) = 11.7
Do note that this number are based on a trailing 12 months calculation. So it will not accurately reflect the forward PE. Even if we were to take into account a 20% decrease in EPS due to the upcoming issues, the PE ratio still stands at 14.6. Is that good enough for you to invest your money? Leave your comments below.
Disclaimer: The above references is an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
Kua Simi Property 
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