Maybank Kim Eng analyst Chua Su Tye has maintained his “buy” call on AIMS APAC REIT (AA REIT) with the same target price of $1.50 following its 2QFY2021 results posted on Oct 27.
See: AIMS APAC REIT 2Q DPU drops 20% to 2 cents on lower NPI
The REIT posted distribution per unit (DPU) of 2.00 cents for the quarter, down 20% y-o-y, due to lower net property income (NPI) of $21.3 million, which was down 5.2% y-o-y.
To this end, Chua believes that there will be an improvement in rents from the REIT’s warehouse and logistics assets to support NPI recovery in FY2022.
Chua has also adjusted his estimates for the 7 Bulim Street acquisition, which is slightly accretive at a 7.07% NPI yield.
“Our DPUs stay mostly intact, as does our dividend discount model (DDM)-based $1.50 TP,” he writes in an Oct 27 report.
During the quarter, AA REIT reported portfolio occupancy of 94.5% as at end September with leases secured at 8 and 10 Pandan Crescent and at 15 Tai Seng.
The REIT executed 22 leases at about 38,100 sqm in 2QFY2021 or 5.7% of its net lettable asset (NLA), pushing its 1HFY2021 activity up 45.6% y-o-y.
“Vacancies are tight; management expects occupancies could vary q-o-q due to differences in the timing of expiring and new leases. Rental reversion was better at -0.8%, vs -9.0% in 1QFY2021, and mainly attributed to its logistics and warehouse properties, where rents have likely bottomed out and in our view, set for recovery,” he notes.
Chua is also positive on the REIT’s diversified industrial property portfolio, which offers exposure to warehouses, light industrial buildings and business parks.
Its sponsor, AIMS Financial Group, is an Australian financial services and investment group founded and controlled by George Wang which boasts real estate fund and asset management expertise.
The REIT’s acquisitions and proactive redevelopment initiatives have led to a 10-year compound average growth rate (CAGR) net asset value (NAV) growth of 7.7% to FY2020 and should remain a key driver of portfolio value accretion.
Factors that could lead to the upside in the REIT’s unit price include an earlier-than-expected pick-up in leasing demand for light industrial and logistics space and better-than-anticipated rental reversions, as well as accretive acquisitions or redevelopment projects.
Conversely, a prolonged slowdown in economic activity, termination of long-term leases, volatility in the Australian dollar and sharper-than-expected rise in interest rates could contribute to lower unit prices in the REIT.
As at 4.29pm, units in AA REIT are trading flat at $1.21.
