DBS Group Research analysts Dale Lai and Derek Tan are recommending investors to “buy” AIMS APAC REIT (AAREIT) due to their estimates that the REIT could enjoy a “banner year ahead”.


See: AIMS APAC REIT reports 18.0% lower 3Q21 DPU of 2.05 cents due to management fees paid fully in cash


 

The way Lai and Tan see it, the market has largely ignored the REIT’s attractive valuations compared to its five-year historical average.

According to the analysts, there is room for AAREIT’s dividend yields to compress by at least 1.0%.

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“AAREIT is currently trading at a forward dividend yield of 7.5%; a 2.5% spread over the average yield of industrial Singapore REITs or S-REITs (5.0%)” they write.

“Historical five-year average spread is around 1.5%, implying that AAREIT’s yield could potentially compress by 1.0%, on expected mean reversion,” they add.


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On this, Lai and Tan expect the REIT to trade at a premium to net asset value.

“AAREIT is currently trading at a price to net asset value (P/NAV) multiple of 0.96 times vs. industrial S-REITs’ 1.54 times, representing a spread of 0.58 times.”

“Historical five-year average spread is about 0.32 times, equivalent to a P/NAV multiple that is closer to 1.22 times for AAREIT. This implies that investors are not pricing in the potential value of its portfolio which has gross floor area (GFA) upside,” they add.

As the analysts forecast that the REIT will enjoy distribution per unit (DPU) growth of 9% in FY2022 due to the two accretive acquisitions in FY2021, they view the REIT’s forward yield as “attractive”.


See: AIMS APAC REIT to acquire Sime Darby Business Centre for $102 mil and AIMS APAC REIT to acquire property in Jurong Innovation District for $129.6 mil


 

They add that the REIT could be an attractive acquisition for other large-cap industrial S-REITs with an implied cap rate of 6%, considering that consolidation within the S-REITs space have been picking up pace recently.

To this end, Lai and Tan have upped their target price to $1.50 from $1.40 previously, with the projected increase in DPU and higher earnings from the two accretive acquisitions.

Units in AAREIT closed 3 cents higher or 2.3% up at $1.33 on Feb 8.