ARA LOGOS Logistics Trust - CGS-CIMB Research 2020-10-26: Deploying Its Growth Strategy

ARA LOGOS LOGISTICS TRUST (SGX:K2LU)

ARA LOGOS Logistics Trust - Deploying Its Growth Strategy

ARA LOGOS Logistics Trust’s 9M20 DPU of 3.784 Scts came in within our expectations.
The proposed acquisitions are expected to be DPU dilutive but they enhance portfolio stability, quality and diversification.
Reiterate ADD. We like ARA LOGOS Logistics Trust's exposure in logistics/warehouse real estate.

ARA LOGOS Logistics Trust (SGX:K2LU)’s 9M20 DPU of 3.784 Scts came in largely in line at 79% of our full-year forecast. In 3Q20, ARA LOGOS Logistics Trust released another S$1m (on top of S$0.5m released in 2Q20) of the S$2.5m income retained from 1Q20.
ARA LOGOS Logistics Trust's 9M20 revenue increased 1.1% to S$87.3m while NPI improved 2.2% to S$66.8m. Distributable income, however, declined 7.9% due to the one-off distribution and capital distribution in 9M19. Excluding these and including S$1m remaining retained income, distributable income would have been +7.5% y-o-y while DPU increased 7% y-o-y.
Despite COVID-19, ARA LOGOS Logistics Trust’s revenue and NPI improved 1.8% and 4.6% respectively on a q-o-q basis in 3Q20, mainly due to commencement of new leases.
9M20 rental reversion came in at -1% vs. the -0.5% in 1H20, dragged down by -9.4% reversion from one lease executed in 3Q20. Committed occupancy remained high at 97%.

ARA LOGOS Logistics Trust proposed a total acquisition outlay of S$441.2m to acquire
1. 2 warehouses, 1 hardstand, 1 distribution centre and 1 cold storage, Heron (under construction), in Brisbane;
2. 49.5% interest in New LAIVS Trust which holds 4 distribution centres; and
3. 40% of Oxford Property Fund (OP Fund) which holds 1 cold storage.
It will fund the acquisitions through equity and borrowings. Blended NPI yield works out to be 5%. On a pro forma basis, the acquisition will dilute its DPU by 1.9% and raise gearing to 42.7% from 40.1% as at end-Jun.
Post-acquisition, ARA LOGOS Logistics Trust’s asset under management (AUM) will rise to S$1.7bn, and its Australia exposure will rise from 32.5% to 47.6%, lifting WALE from 2.8 years to 4.6 (new portfolio WALE: 11.3 years). It will also gain exposure to the transport and shipping industry, and higher exposure to more established corporations.
The assets come with built-in annual rental reviews of 2.5-4% p.a. or pegged to CPI. Portfolio occupancy excluding rental top-ups or guarantees is high at c.97%.

While the acquisitions would be dilutive, the new assets will provide ARA LOGOS Logistics Trust further income stability and geographical diversification. It is also timely in view of the low interest rate environment and tightening transaction yield in Australia.
The acquisitions of the New LAIVS Fund and OP Fund also give ARA LOGOS Logistics Trust pre-emptive rights over the balance stakes in the funds. Sponsor LOGOS has provided undertaking to back-stop the entire preferential offering which further demonstrates its confidence and long-term commitment to support ARA LOGOS Logistics Trust’s growth. We trim our FY21-22 DPU forecasts by 0.7-1.6% to factor in the acquisitions.
See ARA LOGOS Logistics Trust Share Price; ARA LOGOS Logistics Trust Target Price; ARA LOGOS Logistics Trust Analyst Reports; ARA LOGOS Logistics Trust Dividend History; ARA LOGOS Logistics Trust Announcements; ARA LOGOS Logistics Trust Latest News.
We like ARA LOGOS Logistics Trust for its exposure in logistics/warehouse real estate.
Potential re-rating catalyst/downside risks include better/weaker-than-expected rental reversion.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-10-26

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