AIMS APAC REIT warrants an upgrade: Analyst

AIMS APAC REIT, or AA REIT, building at 51 Marsiling Road, Singapore, which is leased to Beyonics.AIMS APAC REIT, or AA REIT, building at 51 Marsiling Road, Singapore, which is leased to Beyonics.

AIMS APAC REIT‘s mixture of inorganic and organic growth warrants an upgrade, said SCCM Asia Research, an analyst/Insight provider which publishes on Smartkarma.

SCCM Asia Research increased its target price on AIMS APAC REIT to S$1.63 from the S$1.60 it set in mid-October when it upgraded its call to Buy.

The fresh target price increase was to account for the recent Woolworths headquarters acquisition, higher rental growth, driven by the logistics sector, and robust occupancies in the existing portfolio, SCCM Asia Research said in a note dated 2 November. The analyst also said a potential S$100 million equity finance raise was expected in fiscal 2023 to lower gearing levels.

SCCM Asia Research said it raised its estimates, and now expects revenue to grow at a 16 percent compound annual growth rate over fiscal 2021-2023, primarily on contributions from the Woolworths acquisition.

At end-September, AA REIT announced the proposed acquisition of the Woolworths headquarters in Australia for A$463.25 million.

The analyst noted the Woolworths property has redevelopment potential, which could increase the net lettable area by up to four times the current around 45,000 square meters, but added that wasn’t yet priced into SCCM Asia Research’s model.

AIMS APAC REIT reported in mid-October its net property income for the fiscal first half rose 19.4 percent on-year to S$47.71 million, mainly on the rental contribution from the 7 Bulim Street property, acquired last year, and higher gross revenue from 20 Gul Way, 8 & 10 Pandan Crescent and 541 Yishun Industrial Park A.

The distribution per unit (DPU) for the fiscal first half came in at 4.75 Singapore cents, up 18.8 percent from 4.0 Singapore cents in the year-ago period, the REIT reported.

SCCM Asia Research said it expected DPU growth would be “flattish” in fiscal 2022, and increase by 5.6 percent in fiscal 2023, after a dilution effect.

The REIT currently trades at an attractive 1.07 times fiscal 2022 price-to-book ratio, compared with industrial peers at 1.39 times, and offers a potential total return of 20 percent, including upside potential and yield, the note said.

Units of AA REIT ended Friday up 0.69 percent at S$1.47.