"With a comfortable gearing position, it is well-poised to capitalise on potential acquisition opportunities in Singapore and Australia," states Natarajan in his March 24 note.
"Asset enhancements are on track, and will start contributing positively from FY2026. AAREIT is one of our top mid-cap industrial REIT picks," he adds.
The REIT is in the process of selling 3 Toh Tuck Link at a premium of 32.5% to valuation, and proceeds will be used to lower debt and bring its gearing to 32%.
This will give the REIT a debt headroom of $10 million for future acquisitions, assuming a 40% gearing level.
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On the other hand, the REIT enjoys strong rental reversions of 28.2% y-o-y for its 3QFY2025.
"While rent reversions are likely to moderate in FY2026, we expect it to be still healthy, in the high single digits," says Natarajan.
Portfolio occupancy as at 3QFY2025 dipped 0.5 percentage points q-o-q to 94.5% but is seen to trend back up in the coming quarters.
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The REIT is seen to enjoy lower financing costs after the recent issue of $125 million worth of 5-year perps at a coupon of 4.7% that is used to refinance an earlier issue at 5.65%.
Another $250 million worth of perps, at 5.375%, is due to for reset next September.
"We believe AAREIT could similarly issue new perps to replace it next year, and achieve additional interest cost savings of $2 million per year," says Natarajan.
With savings from the lower cost of debt, Natarajan has raised his FY2026 and FY2027 distribution per unit forecast by 1 to 2%, leading to his new target price of $1.48.
AIMS APAC REIT units as at 9.30 am changed hands at $1.27, up 0.79% for the day.
