Analysts are positive on AIMS APAC REIT (AA REIT) following its results for the 9MFY2024 ended Dec 31, 2023.
For the period, the REIT’s distribution per unit (DPU) marginally dropped by 4.1% y-o-y to 6.99 cents, which was attributable to the higher unit base. In the 9MFY2023, AA REIT’s units grew by 12.5% y-o-y to 810.6 million compared to the 720.3 million units in the same period a year ago.
Meanwhile, AA REIT’s distributions to unitholders rose by 5.2% y-o-y to $55.1 million, as gross revenue grew 5.1% y-o-y to $131.6 million while its net property income (NPI) also rose by 6.3% y-o-y to $97.8 million with the NPI margin up by 0.8 percentage points y-o-y at 74.3%.
Read more here: AIMS APAC REIT reports 9MFY2024 DPU of 6.99 cents, 4.1% lower y-o-y, on enlarged unit base
Following AA REIT’s results, RHB Bank Singapore analyst Vijay Natarajan and the team of analysts at DBS Group Research are both maintaining their “buy” calls at unchanged target prices of $1.48 and $1.60 respectively.
Maybank Securities analyst Li Jialin is also keeping her “buy” call, but with a raised target price of $1.39 from $1.36 previously.
See also: RHB initiates coverage on CSE Global with ‘buy’ call with TP of 58 cents
In his Feb 1 note, Natarajan notes that he continues to like the REIT for its “good mix” of income stability from overseas assets and growth stemming from its logistics assets in Singapore.
Meanwhile, AA REIT sees the possibility of borrowing costs peaking around current levels and dipping if interest rate cuts start to materialise in 2HFY2024.
On this, the analyst writes: “ Around 76% of its borrowings are currently hedged, with a fixed debt tenure of around 1.9 years. We expect its upcoming overall portfolio valuation to be stable, with a slight upward bias from the strong income growth at its Singapore assets.”
See also: Suntec REIT biggest beneficiary from MAS’s ‘looser’ leverage, ICR rules: OCBC
Natarajan also observes that AA REIT’s upward rental revision of its logistics portfolio “should continue” to FY2025, after which he “expects the gap” between market and average passing rental rates to be narrowed.
He is similarly bullish on the REIT’s two asset enhancement initiatives (AEI), writing: “The targeted return on investment (ROI) is 7% to 8% and we see upside potential, with its latest capital expenditure (capex) guidance pared down slightly. Gearing remains healthy at 32.2% and management intends to keep it below 40% levels.”
After factoring in downtime for AA REIT’s AEI and adjusting interest cost assumptions, Natarajan has trimmed his FY2024 to FY2025 DPU estimates by 1% to 2%.
Key drivers noted by him include the REIT’s high-quality industrial assets in Singapore and Australia, with the majority being logistics assets, its proven track record in asset redevelopments and enhancements and its good balance of long master lease and multi-tenant assets.
Conversely, key risks include AA REIT’s shorter land leases for its industrial assets in Singapore, a stake sell-down by a major shareholder and rising interest rates and taper tantrums.
The team of analysts at DBS note a similar sentiment, opining that there is “optimism” despite the REIT’s 9MFY2024 DPU coming in slightly below their estimates.
“The strong positive rental reversions of 13.0% in 3QFY2024, coupled with minimal lease expiries remaining in 4QFY2024, reinforce the expectation that positive rental reversions will be sustained. AA REIT’s healthy gearing of only around 32% provides ample debt headroom as the REIT embarks on property redevelopment and AEI projects,” writes the team.
For more stories about where money flows, click here for Capital Section
Lastly, Maybank analyst Li likes AA REIT’s strengthened lease profile, in view of supply building up, adding that leasing demand for business parks “remains tepid”.
Li notes faster-than-expected interest rate cuts and a favourable foreign exchange (forex) rate between the Australian dollar and the Singapore dollar as positive swing factors for the REIT.
On the other hand, downside factors include the prolonged slowdown in economic activity and reduced demand for industrial space, volatility in forex rates which could impede hedging efforts and affect DPU, and lastly an extended period of high interest costs.
As at 2.30 pm, units in AIMS APAC REIT are trading at two cents higher or 1.55% up at $1.31.
