OCBC Investment Research (OIR) analyst Donovan Tan has raised his target price for AIMS APAC REIT (AA REIT) to $1.50 from $1.46 previously. Tan’s report dated Nov 5 follows the REIT’s 1HFY2025 results ended Sept which saw a higher distribution per unit (DPU) of 4.670 cents.
Tan has also kept his “buy” call, noting that the REIT’s DPU came in slightly above his expectations.
The REIT’s gross revenue and net property income (NPI) rose by 7.7% and 5.1% y-o-y to $93.5 million and $67.6 million respectively, primarily driven by robust rental reversion, which accelerated this quarter to 23.9% compared to 12.8% in 1QFY2024.
He notes that a business park in Jurong recorded a 4.2% reversion, although management remains cautious about the outlook for business parks in Singapore. AA REIT’s management continues to expect high single-digit to low-teens rental reversions in the near to medium term.
However, the REIT saw another quarter of a slight dip in portfolio occupancy from 97.3% to 96.7% and an increased cost of debt, Tan says. “We do not view this as the beginning of a weakness; rather, it should be transitory given the ongoing demand for industrial and logistics space,” he adds.
The REIT’s aggregate leverage increased to 33.4% from 33.1%, while the all-in cost of debt rose from 4.3% to 4.4%. The REIT has a fixed debt of $100 million at 3.6%, which is set to be refinanced by next week.
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“Given the ongoing US elections, the rate at which they refinance could vary significantly depending on the election results. In our view, yields may surge further if Trump wins and the Republicans gain control of both houses of Congress, while a Harris victory would likely tilt yields towards the downside. Nevertheless, management believes that 4.4% appears to be a peak rate for them,” Tan says.
Meanwhile, the REIT’s management says that both asset enhancement initiatives (AEIs) are expected to be completed earlier than anticipated, by 1QFY2024 and are projected to come in at a lower cost of approximately $26 million.
The analyst reiterates his thesis from his initiation report on AA REIT about its strong capability to drive returns through organic growth and development, including their environmental, social and governance (ESG) initiatives.
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He raises his FY2025 and FY2026 DPU estimates by 1.5% and 1.3% respectively, to account for increased contributions from AEIs and stronger rental reversions.
As at 10.01am, units in AIMS APAC REIT are trading 1 cent higher or 0.794% up at $1.27.
