RHB Research said the management has a target of RM100mil in acquisitions annually.
PETALING JAYA: AME Real Estate Investment Trust
(AME-REIT) is favoured as a defensive play with upside from its inorganic growth prospects as it leverages on the pipeline of new developments from its sponsor.
According to RHB Research, the REIT’s nine months ended Dec 31, 2024 (9M24) earnings were within expectations, with stable earnings underpinned by its fully occupied properties.
Revenue increased by 3% year-on-year (y-o-y), driven by the completed acquisition of Plot 16 Indahpura in Oct 2023 as well as positive rental reversions across its portfolio.
“While still ideal, net property income margins were slightly lower at 92% (3Q24: 93.4%) due to the higher assessment costs and maintenance expenses, while financing expenses increased by RM200,000 y-o-y due to additional borrowings to fund the acquisitions.
“After the completion of its ongoing acquisitions, the expected gearing ratio of just 27% is among the lowest of Malaysia REITs under our coverage, providing room for more acquisitions,” the research house said.
It pointed out that the REIT had a gearing ratio of 14.9% as at end-December 2024.
Despite the expected increase in gearing ratio, the research house believed that AME-REIT still has financing headroom of RM380mil before it hits the 50% gearing limit and needs to raise funds through equity.
It said the management has a target of RM100mil in acquisitions annually.
RHB Research added that there will be minimal downside risks with occupancy rates remaining full.
It noted that the leases due for renewal in FY26 and FY27 (30% and 20% of the REIT’s gross rental income) provide an opportunity to record higher rental rates.
“While compressed yields may limit opportunities for external acquisitions, the REIT should benefit from the pipeline of new developments from its sponsor,” it said.
AME-REIT is acquiring RM120mil worth of assets in Iskandar Malaysia from its sponsor, which is expected to be completed in phases by this September .
The research house is maintaining a “buy” call on the counter with a target price of RM1.57, while keeping its earnings estimates unchanged.
It has projected a 6% dividend yield in FY26. The REIT announced a dividend per unit of 1.89 sen, bringing the year-to-date total to 5.6 sen versus 5.5 sen a year ago.
