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AIMS APAC REIT Forward-Thinking 1H FY2026 · Investor Exchange

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  Time for another Investor Exchange Podcast. Here are your hosts, Matt and Sally.
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  Welcome to the Deep Dive. Today we're digging into the latest financials from AIMS APAC REIT.
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  You'll know them as AA REIT. That's right. We're focusing on their results for
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  the first half of financial year 2026.
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  So that's the six months ending September 30th, 2025.
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  We've got, well, quite a stack of documents here detailing their operations and strategy.
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  And our mission today is pretty clear, isn't it? We want to look beyond just
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  the headline numbers. Exactly.
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  We need to uncover the, you know, the strategic moves that really shapes their
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  financial performance this half year. This isn't just about reading out metrics.
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  No. It's about understanding financial strategy in action.
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  With A.A. REIT, we're looking at how management navigated, well,
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  some tricky things like currency volatility and a bit of a slowdown in regional growth.
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  And they use levers like, you know, active asset management and some really
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  careful capital restructuring, all designed at the end of the day to secure
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  stable distributions for you, the unit holder.
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  OK, let's look at those headlines then, because right away they seem a little counterintuitive.
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  They do a little bit. A REIT managed a 1.1% year-on-year rise in distribution per unit, the DPU.
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  So that hit 4.720 Singapore cents. Okay, positive. Right.
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  Net property income, NPI, also grew, but only just. 1.1% again, up to $68.4 million.
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  And gross revenue was basically flat. It rose just 0.2% to S93.7 million dollars.
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  So yeah, NPI barely moving, revenue almost static, yet the distribution is up.
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  How does that work? That's where we need to start digging, isn't it?
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  This is exactly it. That tiny NPI growth, it actually masks some pretty strong
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  underlying income health.
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  If you look a bit further down the income statement, that net income,
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  before you factor in the joint venture profits, that saw a really notable jump.
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  It was up 9.9% to S44.5 million dollars. Wow, okay, nearly 10%.
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  And total return after tax showed similar strength of 9.5% year-on-year to S$47.1 million.
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  Right. So that 9.9% jump in the core income compared to just 1.1% NPI growth. It tells you two things.
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  First, their internal property management must be pretty efficient,
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  right? I think so. And second, something significant must have been dragging
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  that overall NPI figure down.
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  Precisely. Let's start with the good stuff for NPI.
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  The growth, small as it was, came from higher rent and recoveries from key Singapore
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  assets. We're talking industrial and logistics properties like 27 Pinjuru Lane,
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  8 and 10 Panda and Crescent, 51 Marcelling Road.
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  Okay, the core portfolio doing its job. Exactly.
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  And crucially, property operating expenses were actually lower.
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  They fell to S25.3 million dollars from S25.9 million dollars last year,
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  mostly because electricity costs came down. So internally, yeah, they're running lean.
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  So the efficiency is definitely there. What were the headwinds then?
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  What kept NPI from getting closer to that, you know, that nearly 10% underlying income growth?
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  Okay, three main things hit them. First was a strategic choice.
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  They sold off three-toe tuck link. That sale finished in June 2025.
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  Right. So obviously the revenue from that property is just gone from the books for this period.
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  Okay, so that's a calculated one-off structural shift. What about market forces?
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  Right. The second and third hits came from Australia related to currency and accounting.
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  The big one was the Australian dollar weakening against the Singapore dollar. The AUDSGD rate. Yep.
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  That dampened the reported revenue from all their Australian properties when
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  you translate it back to SING dollars. It's not an operational failure.
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  The tenants pay their rent in AUD. But it just looks smaller on the SGD accounts? Exactly.
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  And then if you connect that currency weakness to their big joint venture,
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  the Macquarie Park Trust, which holds the Optus Center, well...
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  The impact looks even bigger there. Ah, okay. So that JV took a hit.
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  It was a double whammy for the joint venture, really.
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  The share of profits dropped significantly down 22.5%. Ouch. Yeah.
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  Half of that was the currency effect we just talked about. The other half was
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  a technical accounting thing.
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  It relates to straight lining rental income under FRS 116.
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  Okay, FRS 116, one of those accounting standards.
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  Can you quickly break down what straight lining rental income means for,
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  you know, for the listener? Sure.
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  Think of it like this. Many leases have built-in rent increases, right?
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  Step-up clauses. Yeah, rent goes up a bit each year. Under FRS 116,
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  instead of just recording the actual rent paid each year, the company has to
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  average out the total expected rent over the entire lease term.
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  So even if the rent steps up later, the accounting smooths it out from day one.
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  Ah, so it can make the income look lower on paper now, even though the actual
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  cash coming in later will be higher? Precisely.
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  So that accounting adjustment plus the weaker AUD created that big 22.5% drag
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  on the joint venture profit line.
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  Okay, so let's just pause and appreciate this balancing act.
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  They had the divestment, currency headwinds, this accounting drag,
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  yet they still managed to grow the DPU. Yep. Which confirms what we suspected.
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  Something really positive must have happened on the cost and capital side to make that possible.
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  And you've hit the nail on the head. Yeah. The crucial element here is a massive
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  improvement in borrowing costs.
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  So this is the single biggest factor that protected your distribution.
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  OK, tell me about these costs.
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  They reported as $16.0 million in borrowing costs for this half.
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  That's $3.5 million lower than the same period last year. How much lower is
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  that in percentage terms?
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  A remarkable 18.0% lower.
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  18%. Wow. Yeah. And this wasn't just luck, you know, with rates.
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  It was driven partly by lower floating rates, sure.
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  But more importantly, by the strategic capital moves they made. That 18% saving is huge.
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  Yeah. This feels like where that redemption of the perpetual securities fits in. Exactly.
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  That was the key move. It was expensive up front, perhaps, but highly strategic.
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  Management redeemed S-125 million dollars of perpetual securities back in August 2025.
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  And those perpetuals, they were costly, weren't they? Very. They carried a really
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  high coupon of 5.65%. Think of them like expensive mezzanine debt or quasi-equity.
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  It's always there, that cost.
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  And the interest rate is pretty unforgiving, like high interest credit card
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  debt on the company's books.
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  Okay, so they got rid of that 5.65% credit card debt. What did they replace
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  it with? They effectively swapped it for cheaper fixed rate term debt.
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  Now, their total borrowings did go up by about $125 million because they took
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  on new debt to pay off those perpetuals. Right.
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  Makes sense. But the crucial thing is the cost difference.
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  They basically took out a cheaper loan to pay off that really expensive 5.65% perpetual.
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  And that move instantly lowered their overall blended debt funding costs down
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  to 4.2%, from 4.4% before.
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  And that reduction flows directly into savings on the interest expense line. Bingo.
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  That created the 18% saving, which pushed the DPU into positive territory,
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  even though NPI was sluggish.
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  That's a really clear example of active capital management driving returns for unit holders.
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  But, you know, that strategy only works if the actual properties are performing
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  well underneath it all. Absolutely.
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  Let's talk about their active asset management. The Asset Enhancement Initiative,
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  the AEI at 7 Clementi Loop, really stands out. It's a great case study,
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  actually, in creating value.
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  They did a full refurbishment, really focused on what modern occupiers need.
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  They even targeted a BCA Greenmark Gold Plus certification. Which is important
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  these days. Definitely.
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  And the payoff. They secured a 15-year master lease with a global storage and
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  information management firm right after finishing the work.
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  Wow. A 15-year lease right after an AEI is a huge vote of confidence in the
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  building and the location.
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  But does that length pose any risk? You know, with inflation being what it has
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  been, locking in a tenant for 15 years, does that limit their upside if rents
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  really take off? That's a very fair question.
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  It's always a trade-off in REIT management, isn't it? Locking in a 15-year lease,
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  yes, it potentially caps some aggressive short-term rental upside if the market absolutely booms.
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  But what it gives you is incredible cash flow stability and certainty.
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  It completely de-risks that asset for a long time. Okay.
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  So management here is clearly prioritizing long-term income stability,
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  which is what income-focused investors often want to see, plus the quality that
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  global tenant minimizes operational risk too. And the general leasing metric
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  seemed to back up this focus on quality operations.
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  They achieved a strong overall positive rental reversion of 7.7% for the half year. Absolutely.
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  That shows the market is still willing to pay for good space.
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  And if you break that down, the really critical logistics and warehouse segment
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  saw an even stronger reversion. Yeah.
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  Positive 10.3%. Plus 10%. Yeah, that points to really high demand and good pricing
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  power, specifically in their core industrial asset class.
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  That strength underpins the whole portfolio.
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  And the other resilience metrics look solid, too.
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  Portfolio occupancy at 93.3%, though they mentioned committed occupancy,
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  stripping out sort of short-term movements, was higher at 95.1%. That's right.
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  And the weighted average lease expiry, the way a lease, is sitting at a healthy 4.2 years.
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  Pretty stable. And it's stable by design, really. Look at their tenant base.
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  82.5% of their gross rental income comes from tenants in what they call the
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  essential and defensive industries. So...
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  Less likely to default in a downturn. Exactly. It acts as a pretty robust buffer
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  against wider economic bumps.
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  Okay, let's swing back to the capital structure then, because this is where
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  we see the direct results of that perpetual swap playing out.
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  Aggregate leverage is up a bit to 35.0% from 33.4%. Which you'd expect, right?
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  They took on new debt to pay off the perp. Yeah, but it's still very comfortably
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  below the 50% regulatory limit. Lots of headroom.
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  And the interest coverage ratio, the ICR, looks stable at 2.5 times.
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  But here's the key figure, the one that really shows the impact of that perpetual redemption.
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  What's that? The ICR, excluding the distributions on those perpetual securities.
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  Remember, they don't have to pay those anymore. Ah.
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  That figure jumped massively from 3.9 times to 4.5 times. Wow.
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  That huge jump just clearly illustrates how removing that high cost debt immediately
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  improved their underlying credit profile and their ability to cover their remaining
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  interest payments. Okay, so that gives you, the listener, a good sense of comfort.
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  Plus, 70% of their borrowings are on fixed rates now. Yep.
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  69% truly fixed, 1% on forward swaps.
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  And crucially, no major debt refinancing needed until financial year 2027.
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  That provides a lot of stability for the next couple of years. Definitely.
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  We should also mention their sustainability efforts briefly,
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  because they're linking it to finance now.
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  Oh, yeah. They commissioned phase two of their solar installations,
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  bringing their total capacity in Singapore to over 15 megawatts peak.
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  And they hit their targets for their sustainability-linked loan, the SLL.
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  And hitting those ESG targets actually saved them money. It did.
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  A tangible reward. They got a three basis points margin reduction on that loan.
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  So doing good is actually lowering their borrowing costs slightly.
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  Interesting. Okay. Shifting gears to the outlook. We've established they had
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  a pretty resilient half year, mainly driven by that cost control and smart capital
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  management, alongside solid asset work.
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  Where are they focusing their investments going forward?
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  Well, the manager is sticking to its knitting, really. They talk about their
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  four-pillared strategy.
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  Selective acquisitions, active asset management, prudent capital management,
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  and strategic partnerships.
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  Sounds sensible. And what you see is they're actively trying to.
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  Sort of rejuvenate the portfolio, moving towards higher specification industrial
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  assets that can command better rents and hopefully deliver more sustainable
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  income growth over the long term.
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  And the immediate proof of that strategy is that proposed acquisition, right?
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  The framework building. That's right. They announced the proposed acquisition for $56.65 million.
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  It looks like a very targeted move. Why is this building? It's designed to deepen
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  their exposure specifically to high-spec industrial assets.
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  And it's in a strong city fringe location.
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  Crucially, the numbers look good on paper. How so?
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  It offers a projected year one NPI yield of 8.1%. That's pretty attractive.
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  And it's expected to add to the DPU about 2.5% accretion, based on their pro
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  forma calculations for FY 2025.
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  So it ticks the box of being immediately value adding.
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  That seems to be the hurdle, yes. Every acquisition needs to contribute positively from the get-go.
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  And it's not just about buying new stuff, is it? but they're also looking at
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  growing organically from their existing land bank.
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  Exactly. They're trying to maximize value from what they already hold.
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  They flagged potential future development pathways up to 600,000 square feet
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  of potential in Singapore and a huge 1.5 million square feet in Australia.
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  Wow, that's significant potential down the line. It is. It shows their strategy
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  isn't just buying assets, but also strategically upgrading and expanding on
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  their existing footprint.
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  Okay, finally, let's just quickly set the scene with the broader economy.
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  What's the backdrop they're planning against? Well, globally,
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  things are maybe moderating a bit, but there are signs of cautious easing on interest rates.
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  The U.S. Federal Reserve, for instance, confirmed a second 25 basis point rate
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  cut back in October 2025.
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  Right. That lowered the U.S. funds rate range to 3.75 percent, 4.00 percent.
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  So maybe a slightly less hostile global borrowing environment than,
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  say, a year ago. And what about their main market, Singapore?
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  Singapore's growth did moderate a bit, 2.9 percent in the third quarter of 2025.
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  But there's a positive sign.
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  The Purchasing Managers Index, the PMI, improved to 50.1 in September.
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  And above 50 means? Above 50 generally points towards expansion in the manufacturing sector.
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  And since AAE REIT has a lot of Singapore industrial assets,
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  that's a positive indicator for future demand for their space. OK.
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  And the other key market, Australia, still dealing with those currency issues.
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  Yes. And the Reserve Bank of Australia, the RBA, is still the cautious one.
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  They kept their main cash rate unchanged at 3.6% in November 2025.
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  They stated ongoing inflation concerns. Inflation was 3.2% in the third quarter there.
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  So while AED REIT faces those AUD translation headwinds from Australia,
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  the assets themselves are mostly locked into long leases with good tenants,
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  which helps insulate them a bit from short-term RBA moves.
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  Okay, so let's try and synthesize this whole deep dive.
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  AED REIT had this period of, let's say, low operational growth MPI up only 1.1%. Mm-hmm.
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  But they successfully turned that into positive DPU growth for uni holders,
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  mainly through really ascoot capital management. Absolutely.
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  That redemption of the high cost perpetual securities was key.
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  It created enormous cost savings.
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  Right. And that saving, combined with strong rental uplist, particularly in
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  logistics, was enough to offset the lost revenue from the divestment and those
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  tricky currency headwinds.
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  So the final takeaway, I think, is that the REIT is executing a pretty smart
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  defensive strategy right now. They're balancing those economic headwinds by
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  focusing investments on higher quality, higher spec assets.
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  Like the framework building and the AEIs.
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  Exactly. And using financial engineering like that, hope redemption,
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  to lock in lower interest costs where possible.
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  It's all aimed at ensuring long-term, stable returns and modernizing the portfolio for the future.
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  That redemption of the 5.65% perpetual securities was, well,
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  a financial masterstroke, wasn't it?
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  Delivered immediate DPU benefit. It certainly looks that way on these numbers.
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  But we noted that while 70% of their debt is fixed rate now,
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  the weighted average tenure of that fixed rate debt is currently only about 0.9 years. Quite short.
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  Hmm. Yeah, that's a relatively short term for fixed cover. Which raises a final,
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  maybe provocative thought for you, the listener, to mull over.
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  Given this short average fixed rate period, how significant will the interest
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  rate risk management challenge be for A. Ray REIT immediately after FY 2027?
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  That's when a larger chunk of this current fixed-rate debt might need refinancing,
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  potentially in what could still be an uncertain rate environment,
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  something to keep an eye on.