AIMS Apac Reit : O5RU +0.83% has received valid acceptances and excess applications of 204.1 per cent of the total number of new units available at the close of its preferential offering on Jun 22.

 

In a bourse filing on Monday (Jun 26), the manager said that it received valid acceptances of 17.5 million new units and excess applications of 34.2 million units.

 

A total of 25.4 million new units will be issued to raise gross proceeds of S$30 million.

 

The offering, which was launched on Jun 14, issued 35 new units for every 1,000 existing units held as at Jun 9 at an issue price of S$1.189 per new unit.

 

This includes the acceptances of AIMS Apac Capital Holdings, as well as that of its relevant entities which add up to their full allotment of 2.7 million new units, as well as applications for 9.9 million excess new units under the preferential offering.

 

The new units will be listed on the mainboard of the Singapore Exchange from 9 am on Jul 3.

 

The preferential offering, together with an earlier private placement which raised S$70 million, are a part of the company&rsquo s equity fundraising exercise, which it announced on May 31.

 

In a separate bourse filing on Monday (Jun 26), the manager said that approximately S$67 million in gross proceeds was used to repay existing debts.

 

A further S$1.2 million in gross proceeds went into paying the fees and expenses incurred as part of the equity fund-raising.

 

There is a saying: For a structure to grow tall, its foundations must be strong and sturdy. That is the ethos adopted by AIMS APAC REIT (AA REIT) O5RU 0.85% CEO Russell Ng, who has been steadily building on its real estate business, laying it out stone by stone, asset by asset.

 

&ldquo From a long-term strategic perspective, we&rsquo re very much focused on acquiring assets that are of quality and developing assets to a modern and high standard&hellip that really adds to the overall strength of the portfolio,&rdquo says Ng.

 

This strategy seems to have paid off. Today, AA REIT has a portfolio comprising 26 properties in Singapore and three in Australia. Listed on the Singapore Exchange S68 0.00% , AA REIT&rsquo s objective is to invest in a diversified portfolio of high-quality, income-producing logistics, business parks and industrial real estate across Asia Pacific.

 

It has also focused its efforts on building a balanced portfolio. About one-third of AAREIT&rsquo s portfolio is anchored by business parks and high-tech properties, where long-term leases with built-in rental escalations go to global food and consumer staples, telecommunications and life sciences companies. That offers some income &ldquo stability&rdquo , Ng explains.

 

Logistics makes up another sizeable segment of its portfolio, where the leases are typically shorter and are marked to market upon renewal. &ldquo This allows us to reposition the portfolio according to market conditions. In an uptrend rental market, these leases provide the potential for growth,&rdquo says Ng.

 

By having a combination of 44% of master leases and 56% of multi-tenanted properties, it allows the REIT to &ldquo strike a balance between long-term leases with annual escalation and short-term leases, which allows us to benefit from positive rental reversion&rdquo , explains Ng.

 

Another key differentiating factor is AAREIT&rsquo s active approach in redeveloping its assets, says Ng. Over the past decade, it has completed six development projects, five asset enhancement initiatives, which had led to long-term leases and maximization of underutilised plot ratio to increase total floor area.

 

AA REIT managed to achieve record occupancy of 98% in the fiscal year ending March 31 (FY2023). With its revenue increasing by 18%, AA REIT grew its distribution per unit (DPU) by 5.1% from the previous year. How does one achieve that? &ldquo It&rsquo s a combination of having good-quality assets and favourable market supply and demand dynamics,&rdquo says Ng.

 

Property as a people business

 

AA REIT&rsquo s financial performance can be attributed in part to the leadership of Ng, who joined as manager in September 2020 and was appointed as the CEO a year later.

 

In his role, he works with the board and management team to determine the strategic direction, investment strategy and overall business, as well as the day-to-day management and execution of the business plan. Ng has made his rounds in the industry, with over 19 years of experience in real estate investment, asset management and corporate finance in the Asia Pacific region.

 

Prior to joining AA REIT, he held senior fund management and investment roles with a global real estate developer, private equity real estate funds and listed REITs.

 

Reflecting on what has kept him going for so long, Ng says: &ldquo Property, fundamentally, is a people business.&rdquo Ng believes that stakeholder engagement is key to navigating the ups and downs of the real estate cycle.

 

He says: &ldquo First and foremost, it&rsquo s working with customers (tenants) and the ability to see things from their perspective. You also deal with different people within the ecosystem. If you&rsquo re looking at a new development, you&rsquo re engaging the architects, you&rsquo re talking with the engineers, and if we need to get approvals, you&rsquo re talking to the authorities. But being a REIT manager, it&rsquo s also about dealing with the bankers, investors and research analysts...There are many facets of our business which makes it dynamic and interesting.&rdquo

 

In balancing the needs and motivations of different stakeholder groups, Ng dishes out a unique perspective on how he approaches things. &ldquo You&rsquo ve got to look at the shoes, you&rsquo ve got to look straight ahead, you&rsquo ve got to look over the horizon,&rdquo he says.

 

In that regard, he devotes a significant portion of his time to operations and commercial decisions to drive the business forward.

 

Another chunk of his time is spent engaging the investment community and key equity and debt capital providers, and working with the Board to guide the long-term strategic direction of the business.

 

Opportunity from supply chain reconfiguration

 

Market conditions have also played a big role in driving AA REIT&rsquo s transformation. With rising geopolitical tensions between the US and China, the world has seen a significant &ldquo reconfiguration of supply chains&rdquo , observes Ng.

 

Manufacturing has shifted out of China to other markets like Vietnam, India and Singapore, creating a wealth of opportunities for the city-state&rsquo s logistics sector.

 

Global corporates and advanced manufacturing companies are eyeing Singapore as a hub, and snapping up industrial buildings in the city-state to stockpile essential products and goods like electronic chips in these warehouse spaces.

 

To date, AA REIT has been able to secure &ldquo strong occupiers&rdquo , such as those in high value-added industries like life sciences, manufacturing, and pharmaceutical healthcare, which are taking up leases at the REIT&rsquo s industrial buildings.

 

One of the key attractions for tenants lies in the REIT&rsquo s high-specs logistics facilities, says Ng. A third of its portfolio has rampup facilities, or a ramp on every floor, which acts as a &ldquo ground floor&rdquo .

 

Describing how the ramp raises efficiency and operations, Ng says: &ldquo You&rsquo re not just waiting to load up your goods and wait in the loading bay for the lift and so forth. You just drive up and unload, pack and go.&rdquo

 

In another example, the REIT developed a property in Tuas so that it had a high clearance height and heavy floor-loading capacity that could be suitable for either a third-party logistics operator or industrial user. The building was taken up by a global healthcare company on a 10-year master lease.

 

AA REIT has observed a healthy appetite by players in the market, especially for its modern-specs warehouse and logistics properties, so much so that every time a tenant vacates, there are several prospects &ldquo waiting in the wings&rdquo , says Ng.

 

This take-up rate remains strong &mdash AA REIT saw a positive rental reversion of 18.5% in its latest fiscal year. &ldquo We believe we&rsquo re in the right space to benefit from the supply and demand imbalance across the logistics and industrial market and from having a large proportion of our portfolio with modern specs following the re-development and asset enhancements over the years,&rdquo says Ng.

 

Learning to cope with failure

 

For Ng, the biggest challenge is having to steer the company through the ups and downs of the property market cycle. For many years, the property market has benefited from low interest rates. But the reversal of interest rates now has sparked concerns about how this may affect credit markets and property values. Persistent inflation can also lead to higher operating and construction costs.

 

For AA REIT, the impact of rising costs is mitigated through its combination of balanced lease structure. For its master leases, tenants are responsible for property outgoings such as maintenance, security and utility costs, whereas for its multi-tenanted properties, the rising operating and utility costs are offset by built-in annual rental escalations and an increase in service charge which was implemented at the start of January 2023. In an environment of rising interest rates, AA REIT adopts a proactive hedging and risk management policy.

 

Of AA REIT&rsquo s borrowings, 88% are hedged to fixed rates as at the end of FY2023, with no refinancing requirements for the next financial year. It goes back to building a strong foundation for growth, a philosophy that Ng actively tries to practise with his team.

 

He counts himself fortunate to have a team that is &ldquo professional and proactive&rdquo , with many having stayed with the company over many years. Having team members with strong industry expertise and business know-how has helped bring the company to where it is today.

 

Having worked through a number of property transactions, Ng has encountered his own share of failures. All of his biggest learnings have come from big failures, he says.

 

Citing a &ldquo stoic philosophy&rdquo , he adds: &ldquo You cannot always control what is happening in your environment. You can only change your thoughts and improve what&rsquo s within your control.&rdquo This has helped him fine-tune his edge in judgment and develop a deeper appreciation of business.

 

&ldquo When the wind is flowing high your way, don&rsquo t be too happy when the wind stops and the sails are down, don&rsquo t be too down. Everything happens in cycles. The key is to practice consistency and work hard. The harder you work, hopefully the luckier you become,&rdquo he reflects.