RHB Group Research analyst Vijay Natarajan has maintained his ‘buy’ call on ARA Logos Logistics Trust (ALOG) with a higher target price of 85 cents from 77 cents, representing a 10% upside on the counter’s last closed share price on May 25. 

To Natarajan, ALOG has been the “best performing S-REIT year-to-date (y-t-d)” with a 28% gain compared to the S-REIT sector’s overall performance of -0.4%. 

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The pure-play logistics REIT has been a key beneficiary of structural changes in logistic demand post Covid-19 and Natarajan expects investor interest in this segment to remain high”. 

Natarajan notes that rising logistics demand in Singapore and Australia has steadily pushed up ALOG's portfolio occupancy in 1Q to 99.1%, after bottoming at 90% in 2Q19. 

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The steady improvement in operating metrics has resulted in an adjusted DPU growth in 1QFY2021 ended March of 6.6% y-o-y. 

ALOG had also recently announced a divestment of Kidman Park in Australia and ALOG Changi Districentre 2 in Singapore at 2.8% and 7.7% premiums to their latest book values. 

According to Natarajan, these proceeds are expected to pare down debt and bring down gearing levels to a more comfortable c.41%, from 42.9% post-acquisition. 

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In order to maintain a competitive position, Asset Enhancement Initiatives were announced for five of its key Singapore assets at SGD5.1m and are to be completed by December 2021.  

To Natarajan, “the resurgence of Covid-19 cases across various markets provides further tailwinds to the booming logistics sector demand.”

Natarajan has also revised his distribution per unit (DPU) estimates for the FY2021 to FY2023 by 3-7% by adjusting higher occupancy and rent growth assumptions and fine-tuning interest cost assumptions. 

As at 2.41pm, shares are trading at 0.5 cents higher or 0.649% up at 77.5 cents, or 1.45 times P/B, according to RHB’s estimates.