Brokers' take: AA Reit remains an attractive industrial, logistics play, RHB says

RECENT concerns over Aims Apac Reit's (AA Reit) management changes, major shareholder sell-downs and acquisition delays or pricing are likely to be "transient in nature", said RHB in a report on Wednesday.

Although these concerns have led to an 11 per cent drop in the real estate investment trust's (Reit) unit price the past month, they do not alter the Reit's strong business fundamentals, the research team noted.

It added that AA Reit remains an attractive play on the industrial and logistics sector as it is trading at one times its book value and was recently included in the FTSE EPRA Nareit Global Index.

RHB has raised its target price to S$1.72 from S$1.70 and maintained its "buy" call on AA Reit. This implies an upside of 21.1 per cent from the counter's trading price of S$1.42 as at 11.13am on Wednesday. AA Reit's units were up 0.7 per cent or S$0.01 at the time.

The research team has lowered its estimates for FY2022 distribution per unit (DPU) by 2 per cent, but raised its FY2023-2024 DPU estimate by 1 per cent.

On Sept 30, AA Reit's manager announced that the Reit is acquiring the headquarters of Australia's Woolworths in Sydney, Australia, for A$463.3 million (S$454 million).

The move will make the supermarket and grocery chain AA Reit's largest tenant by gross rental income contribution. Post-acquisition, AA Reit's assets under management will jump 26.6 per cent to S$2.18 billion, with the Australian properties accounting for 38.4 per cent of its portfolio by valuation, up from 21.8 per cent currently.

When it comes to the Woolworths deal, RHB believes the asset's long weighted average lease to expiry of 10 years mitigates market concerns on aggressive pricing and slightly lower initial net property income yield.

Moreover, there is strong redevelopment potential, as well as leases that come with built-in rental escalations of 2.75 per cent per annum, with up to 20 years of extension options, RHB added.

READ MORE:

• Investment merits shine through for AA Reit in 'transformational' acquisition of Woolworths HQ
• Brokers' take: DBS upgrades Aims Apac Reit to 'buy', cites attractive valuation