In his Oct 7 note, Natarajan points out that the REIT's target to increase the mix of its logistics, industrial and data centre (DC) assets to account for around 70% of its portfolio by 2027 from 59% now is a positive step that should help narrow the discount to NAV, which is at around 25%.
"Portfolio rebalancing will be done via ongoing divestments of non-core office assets, with proceeds reinvested in higher growth sectors and asset enhancement opportunities," says Natarajan, adding that year to date, the REIT has completed three office asset divestments for EUR34 million, bringing total divestments since 2022 to EUR303.7 million.
Natarajan expects another EUR50 to 100 million worth of divestments in the next few quarters
On the other hand, management is starting to explore acquisition opportunities both from its sponsor’s pipeline and externally, with interest costs stabilising and the anticipated economic recovery from government fiscal stimulus policies.
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AiOnX, the data centre fund, is seen as a key growth pillar for the REIT, which invested EUR50 million in June for a 6.7% stake.
Since then, the REIT has already enjoyed an uplift of 50%, or EUR 24.8 million in fair value gains, on the back of an acquisition of the fifth data centre asset in the UK by the fund.
The five data centres are currently in the early stages of development, with either a secured or reserved power capacity of 1,446MW and visibility for an additional 563MW, for a total 2,009MW, making AiOnX one of the largest data centre players in Europe.
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"Much of the available and proposed capacity is in high demand, with long-term contracts in place or in active discussions from hyperscalers," says Natarajan.
Meanwhile, there's organic growth too, with rent reversion in 1HFY2025 "healthy", at an increase of 11.9% and is expected to remain positive with 20% upside potential. Occupancy is likely to inch up by 4QFY2025 too.
Natarajan believes that the REIT's portfolio valuations have bottomed, with a potential 5-10% upside in the next two years on top of further NAV upside anticipated from planned asset enhancements.
He expects DPU to reach a bottom in the current FY2025 and to grow by 3% pa in the coming FY2026 and FY2027 from operational improvements.
