DBS Group Research analysts Dale Lai and Derek Tan are maintaining their recommendation on AIMS APAC REIT (AA REIT) at “buy” with an unchanged target price of $1.40 following the REIT’s proposed acquisition of a modern ramp-up logistics facility at 7 Bulim Street on Aug 11.
See: AIMS APAC REIT to acquire property in Jurong Innovation District for $129.6 mil
The way Lai and Tan see it, while the property sits on land with a remaining tenure of only 22 years and a remaining master lease of around 3.5 years, demand and rental rates will remain resilient due to its status as one of the few modern logistics facilities in the up-and-coming Jurong Innovation District to serve the Tuas Mega Port.
Both analysts also feel that the acquisition will be accretive to the REIT’s distribution per unit (DPU), although the difference in timing between the issuance of perpetual securities and competition of acquisition will lead to an estimated 1.5% negative carry to the analysts’ FY21F DPU projections.
That said, the acquisition will be 1.8% accretive to the REIT’s DPU from FY22F onwards, say the analysts.
As such, Lai and Tan have adjusted AA REIT’s DPU for FY21F and FY22F to 8.95 cents and 9.72 cents respectively.
“With the proposed acquisition and perps issuance, AA REIT’s gearing is expected to fall to 32.8%, leaving it with a debt headroom of more than $580 million,” say Lai and Tan.
“The higher debt headroom will provide AA REIT with some flexibility to carry out AEI/redevelopment plans or to fund further accretive acquisitions. We have not assumed any further acquisitions or AEIs in our projections,” they add.
Key risks to the acquisition include lower rental income arising from increased competition and prolonged negative rental reversionary trends.
Units in AA REIT closed 1 cent higher, or 0.9% up, at $1.18 on Aug 12.
