Brokers' take: CGS-CIMB raises target price for ARA Logos, sees stronger growth prospects

CGS-CIMB has increased its target price on ARA Logos to S$0.814, up from S$0.745 previously. This came after ARA posted an 8.2 per cent year-on-year (yoy) revenue growth and a 35.7 per cent yoy distribution per unit (DPU) gain to 1.353 Singapore cents for Q1 2021, it said in a regulatory filing last Friday.

The brokerage also noted that ARA Logos' occupancy rate has improved from 98.5 per cent last year to 99.1 per cent in Q1 2021. The trust said it expects to renew expiring leases at flat rental reversion, supported by lower supply and stable demand. As a result, CGS-CIMB has maintained its forecast 2021 to 2023 DPU, but reduced its estimated cost of equity from 7.7 per cent to 7.4 per cent.

CGS-CIMB said that ARA Logos' proposed Changi DistriCentre 2 divestment and recently completed LP Property acquisition have made the trust a "more diversified" real estate investment trust with "stronger growth prospects". The brokerage is optimistic as the portfolio changes resulted in a roughly equal division of ARA Logos' assets under management (AUM) in Singapore and Australia, it said in its Friday report.

That being said, the trust announced on Monday that it has entered an agreement for a proposed divestment of its Kidman Park property in Australia, which would cause the Singapore to Australia AUM ratio to be imbalanced.

The brokerage is also bullish on ARA Logos' prospects as it expects e-commerce growth to continue boosting demand for warehouse logistics assets.

CGS-CIMB highlighted that the stock offers an "attractive" dividend yield of 7 per cent while reiterating its "add" call.

Units of ARA Logos were trading 0.7 per cent or 0.5 Singapore cent higher at 75.5 cents as at 1.16pm on Monday.