RHB Group Research analyst Vijay Natarajan has maintained “buy” on AIMS APAC REIT (AA REIT) with a higher target price of $1.70 from $1.58.
The new target price represents an upside of 11% to the REIT’s last-closed share price on July 8, with a yield of 7% for the FY2022 ending March.
As at July 9, the REIT’s share price has outperformed the market, with a 22% increase year-to-date (y-t-d) compared to the 3% increase in the Singapore REITs (S-REITs) sector.
According to Natarajan, this is due to the REIT’s riding on the heightened interest in logistics-focused REITs at the moment.
See also: Analysts upbeat on AIMS APAC REIT's 4Q21 results, strong DPU growth expected for FY22
On this, he sees further upside to the counter due to its valuation of 1.1 times price-to-book value (P/BV), which he deems as attractive, compared with the industrial S-REITs subsector average of -1.5 times P/BV.
To Natarajan, the continued positive demand for logistics space has enabled the REIT’s portfolio metrics to move in the right direction.
In the FY2021, the REIT saw portfolio occupancy of 95.4%, 6% higher than that of its occupancy in FY2020.
About 52% of rental income as at the 4QFY2021 comes from its logistics assets in Singapore.
In the coming FY2022, about 24% of its leases by rental income are due for renewal, with over half of them from its logistics segment, of which, Natarajan expects a positive rental reversion of between 2% to 5%.
In addition, the REIT still has room for redevelopment and acquisition-led growth.
“Potential opportunities for it, in our view, are: The possible redevelopment of its older industrial assets into higher-value projects such as data centres and build-to-suit projects, and more earnings-accretive acquisitions in Singapore and Australia,” he writes.
Furthermore, the analyst sees another earnings catalyst in the form of the REIT’s potential inclusion into the FTSE EPRA Nareit Index Series after it reduced its investable market cap threshold for the developed Asia series from 0.3% to 0.1 of total index market cap, which puts the REIT in the running to qualify for it.
The REIT also remains among the minority of S-REITs that pays its management fees fully in cash.
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However, it may be paying partial fees to management in units after seeing its share price recovering to above its book value.
“Our sensitive analysis shows that every 10% of fees paid in units results in a c.1% lift in distribution per unit (DPU),” writes Natarajan.
On this, Natarajan has upped his DPU estimate for the FY2022 to FY2023 by 2% to 3% “after assuming 20% of management fees will be paid in units, and by tweaking interest costs”.
Units in AA REIT closed 4 cents higher or 2.6% up at $1.57 on July 9, or 1.11 times P/B, according to RHB's estimates.
Photo: AIMS APAC REIT
