ARA LOGOS Logistics Trust - RHB Invest 2020-10-27: Growing Its Australian Presence; Keep BUY

ARA LOGOS LOGISTICS TRUST (SGX:K2LU)

ARA LOGOS Logistics Trust - Growing Its Australian Presence; Keep BUY

ARA LOGOS Logistics Trust (SGX:K2LU)’s sizeable acquisition of ten Australian assets demonstrates sponsor LOGOS’ ability to grow the REITs portfolio with quality assets. Despite a mildly dilutive transaction, we like the deal for its long WALE (11.3 years) with built-in rent escalations and tenant quality.
ARA LOGOS Logistics Trust also has a rights of first refusal to acquire the remaining fund stake, providing room for growth. The valuation is reasonably attractive with stock trading at 1x P/BV.

ARA LOGOS Logistics Trust announced its proposed acquisition of five properties in Brisbane, Australia (including a development asset which is expected to be completed in Nov 2021) for SGD225.9m. In addition it has also made a fund investment of 49.5% and 40% in New LAIVS Trust (LT) and Oxford Property Fund (OP) which combined own five logistic properties for SGD178.5m.
Five of the assets are freehold with remaining five under leasehold tenures but management is confident that leases can be extended. The assets blended NPI yield of 5% is comparable to that of recent acquisitions of Australian logistic assets by other S-REITs in.
Post-acquisition, 48% of ARA LOGOS Logistics Trust's total assets will be Australian-based, up from 33% currently, in line with ARA LOGOS Logistics Trust’s stated objective of diversifying out of Singapore.
The transaction needs an EGM approval and is expected to be completed by the end of the year.

A long WALE of 11.3 years with no lease break clauses is one of the key highlights of the deal in our view, which offers a good income visibility under the current volatile market conditions. In addition, all the leases have inbuilt rent escalations of 2.5% to 4% pa, providing organic growth. ARA LOGOS Logistics Trust also has rights of first refusal to acquire the remaining stake in the fund.
Overall occupancy stands at 97% with management noting that rents currently in place are in line with market.
Post-acquisition, ACFS (Australia’s largest privately owned container logistics operator) and IPS logistics will become part of the top 10 tenants, accounting for 12% of total rental income.

ARA LOGOS Logistics Trust plans to fund the deal via a combination of private placement and preferential offering of 322m units, raising gross proceeds of SGD188.6m and remaining via debt.
LOGOS will show commitment by subscribing for SGD18.7 worth of units and vendor Ivanhoe has committed to subscribe for SGD 70m worth of units thereby becoming a major shareholder. LOGOS will also provide undertaking to back-stop the entire preferential offering.
Based on the proposed fund raising, the deal is mildly dilutive (-1.9% to 1H20 pro-forma DPU and -2.2% to NAV).
Post transaction, ARA LOGOS Logistics Trust's gearing stands at 42.9% from 40.4% currently.
We revised our FY21-22F DPU by -2%, factoring in the equity fund raising. We also have lowered by 50bps our assumptions, resulting in a the cost of equity of 8.1%.
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.
Maintain BUY and SGD0.72 Target Price, 18% upside with c.8% yield.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-10-27

SGX Stock Analyst Report BUY MAINTAIN BUY 0.72 SAME 0.72