ANALYSTS are optimistic on Aims Apac real estate investment trust’s (AA Reit) growth, although its FY2024 distribution per unit (DPU) fell short of expectations.
On Wednesday (May 8), both DBS Group Research and RHB lowered their price targets and maintained “buy” calls upon cutting earnings estimates to account for rising financing costs and delays in earnings upside from asset enhancements initiatives (AEIs).
RHB has adjusted its target to S$1.46 from S$1.48 after lowering DPU estimates for the next two financial years down 2 to 3 per cent, while DBS revised FY2025 DPU projections down about 4 per cent, bringing its target down to S$1.55 from S$1.60.
“While we are enthusiastic about the two upcoming AEIs, which promise attractive yield-on-cost, there may be a near-term earnings impact as the properties undergo improvement work,” said DBS analysts Dale Lai and Derek Tan, noting that both AEIs are slated to commence later in FY2025, with completion expected in Q3 2025 and Q1 2026, slightly later than initially projected.
Although AA Reit’s full-year DPU missed their estimates on enlarged unit base and higher financing costs, analysts are still positive due to its operational performance and capital management.
“AA Reit has a proven track record of carrying out AEIs and redevelopment projects in its existing portfolio to drive growth in organic income,” said DBS analysts Lai and Tan. They added that several properties in AA Reit’s current portfolio have an untapped plot ratio and could generate up to two million square feet of additional gross floor area to drive further growth in earnings and valuations.
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RHB analyst Vijay Natarajan said AA Reit’s “stellar” rent reversions for logistics assets are expected to continue given the strong market rent growth and its under-rented nature, but at a moderate pace in FY2025 with stable occupancy.
Maybank analyst Li Jialin highlighted the manager’s proactive capital management and maintains a “buy” call with a target price of S$1.39 AA Reit. Li said that the Reit manager intends to keep gearing below 38 per cent despite refinancing work ahead. This includes potentially replacing its S$125 million perpetual securities with a new perp or a blend of perp and debt prior to the first reset date in August 2025.
The equity fundraising conducted earlier this year has also bolstered AA Reit’s balance sheet metrics and provided it with more financial flexibility, DBS’ Lai and Tan added. This helped to lower the Reit’s gearing to 32.6 per cent. “Including the planned S$32 million in AEIs, gearing is expected to only inch up to about 34 per cent, still providing them with ample debt headroom,” they said.
As at midday market break on Thursday, units of AA Reit : O5RU 0% were flat at S$1.29 on a cum distribution basis.
