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


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's 9M20 results came in largely within expectations

  • 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%.

Expanding its footprint in Australia

  • 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%.

Dilutive acquisition but increase portfolio income quality

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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