DBS Group Research analysts Dale Lai and Derek Tan have downgraded AIMS APAC REIT to “hold” from “buy” on valuations.
The move comes despite the REIT’s higher distribution per unit (DPU) of 2.25 cents reported for the 1QFY2022 ended June.
“We believe that positives are priced in at current forward yields of 6.0%, P/NAV of 1.16x, which is more than + 1 standard deviation (s.d.) on its historical range,” write the analysts in a July 29 report.
See also: AIMS APAC REIT sees 12.5% growth in 1Q22 DPU of 2.25 cents
While the analysts have kept their target price estimate of $1.60 on the REIT, they have lowered their estimates for the REIT’s FY2022 DPU by 5.5% due to the delay in the completion of the 315 Alexandra Road acquisition.
“This means that the property is projected to only contribute two quarters of income in FY2022 as compared to previous estimates for four quarters of contribution. The full impact from this acquisition will only be seen in FY2023, generating a forward DPU yield of more than 6.4%,” they write.
“Our target price of S$1.60 is based on discounted cash flow (DCF). Our assumed discount rate is 6.5% (risk-free rate of 2.5%). Our target price implies a target yield of 5.8% (FY2022) and a price-to-net asset value (P/NAV) of 1.19 times,” they add.
Lai and Tan say they are looking forward to the next accretive acquisition made by the REIT, where they believe the next deal may come “in the form of a business park asset in Australia, similar to the type of asset on its books”.
“We believe AA REIT continues to be on the lookout for its next acquisition but given the lack of visibility and the compressed cap rate environment, the REIT needs to be highly selective.”
The analysts add that they may upgrade their recommendation as well as estimates on the REIT should it execute on any potential acquisitions moving forward.
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That said, they acknowledge that their estimates are more conservative compared to the rest of the brokerages as they assume that rental reversions will remain flat in FY2022.
As at 1.03pm, units in AA REIT are trading 1 cent higher or 0.6% up at $1.59 or 1.1 times P/NAV, according to DBS’s estimates.
Photo: AA REIT
