In her June 29 report, Li notes that AA REIT had recently conducted an equity fund raising (EFR) of $100 million — $70 million via private placement and $30 million via preferential offering. A total of 83 million new shares were issued, Li highlights.

While the preferential offering units will only be launched on July 3, the market has already factored in about 10% DPU dilution from an enlarged unitholder base, Li points out. She further notes that an advanced distribution of 1.8 cents per share was issued to existing unitholders.

Meanwhile, on June 26, AA REIT’s management had mentioned that $67 million of its debt was repaid from the EFR proceeds. Following this, pro-forma gearing is expected to fall to 32.8% from 36.1% pre-EFR.

While there are no refinancing needs in FY2023, Li notes that AA REIT has a good track record in capital management. As at March, AA REIT’s average all-in cost of debt stood at 3.4%, remaining stable amid rate hikes in 2022. Maybank sees the debt repayment as a proactive de-gearing exercise to manage cost of debt, in view of stabilising rates.

AA REIT has since identified two asset enhancement initiative projects to be funded by the remaining proceeds worth $33 million. The upgrading work should lift the net property income (NPI) yield of targeted assets to 7%-8%, higher than the REIT’s average NPI yield of 6.6% in Singapore.

<span class='see_also_inread'><b>See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='/capital/brokers-calls/rhb-upbeat-raffles-medicals-contract-win-providing-medical-services?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>RHB ‘upbeat’ on Raffles Medical’s contract win for providing medical services at Connect@Changi</a></b></span>

Factoring in the enlarged unitholder base, Maybank has lowered its DPU forecast by about 10% for FY2024-FY2025. Its target price is similarly cut by 11% to $1.36.

Li highlights that in FY2023, AA REIT saw robust rental reversion of 18.5%, supported by the logistics sector. The analyst notes that about 40% of the REIT’s assets have been upgraded since being added to the portfolio, thereby commanding a higher premium when existing leases roll off.

“Management expects the mark-to-market process to continue and guides for double-digit rental reversions into FY2024,” she concludes.

As at 4pm, units in AA REIT are trading 1 cent higher or 0.82% up at $1.23.

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