RHB has initiated "buy" on AIMS APAC Reit (AAReit), citing it as an overlooked and undervalued industrial real estate investment trust (Reit) with high-quality industrial assets in Singapore and Australia.

It has a target price of S$1.55 for AAReit.

In a report on Thursday, RHB said AAReit has a high-quality logistics-focused industrial portfolio that sees the Reit deriving half of its income from logistics assets. Logistics assets emerged as key beneficiaries of the Covid-19 pandemic, boosting the Reit's portfolio occupancy by 6.3 percentage points to 95.7 per cent to date as at the third quarter of FY2021. The research team foresees this high level of occupancy to continue as demand for logistics assets remains strong due to shifts in supply chains and e-commerce trends.

Analyst Vijay Natarajan also expects the Reit's distribution per unit (DPU) turnaround at the end of FY2022 to increase by 9 per cent, supported by two recent accretive acquisitions in Singapore, including the acquisition of a ramp-up logistics warehouse at 7 Bulim Street, as well as occupancy improvements and the absence of one-off rent rebates. He believes that AAReit has room for acquisition-led growth and is a potential merger and acquisition candidate in the medium term.

In the report, RHB noted that AAReit's core strength is an established track record of extracting value from existing industrial assets via redevelopment, built-to-suit developments, as well as asset enhancement initiatives, despite its small size. So far, the Reit has embarked on nine such projects which have yielded a return on investment of about 8 to 10 per cent.

Furthermore, the research team said the Reit has an untapped potential gross floor area of about 502,707 square feet in its current portfolio which Mr Natarajan believes will be unlocked in "opportune time".

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RHB also noted that the Reit ranked third out of 45 listed Reits and trusts in the independent Governance Index for Trusts 2020 rankings. It looks positively at AAReit being included in the FTSE Russell ST Singapore Shariah Index and the MSCI Singapore Small Cap Index.

"Inclusions into these indices should help in further improving trading liquidity and visibility among global institutional investors, thereby addressing some of the concerns of large institutional investors," Mr Natarajan said.

As at the midday break on Thursday, units of AAReit were flat at S$1.32.