ARA LOGOS Logistics Trust - UOB Kay Hian 2021-01-06: New Platform Generates Growth & Yield Compression

ARA LOGOS LOGISTICS TRUST (SGX:K2LU)

ARA LOGOS Logistics Trust - New Platform Generates Growth & Yield Compression

With LOGOS installed as the new sponsor, ARA LOGOS Logistics Trust could tap on:
1. its expertise in the development of logistics properties; and
2. its sizeable acquisition pipeline of US$10.2b, of which more than half is located in Singapore, Australia and China.
In its maiden acquisition post-reorganisation, ARA LOGOS Logistics Trust will expand its asset size by 28% and deepen its presence in Australia and the cold storage sector.
Re-initiate coverage on ARA LOGOS Logistics Trust with BUY. Distribution yield is attractive at 8.1% for 2021-22.

ARA LOGOS Logistics Trust (SGX:K2LU) invests in income-producing industrial real estate used for logistics purposes in the Asia Pacific region. It owns 27 logistics properties in Singapore and Australia, with a total NLA of 8.7m sf valued at S$1.26b as of Sep 20.

ARA Asset Management has acquired majority control of LOGOS Property Group (LOGOS), which became its global logistics real estate arm. It has injected ARA LOGOS Logistics Trust Management (manager of ARA LOGOS Logistics Trust) and its 10.7% stake in ARA LOGOS Logistics Trust into LOGOS. LOGOS has extended an open invitation for ARA LOGOS Logistics Trust to view all its logistics properties in the Asia Pacific region.
LOGOS is a leading owner, developer and manager of logistics properties in the Asia Pacific region. It has over 6.7m sqm of property owned and under development, with a completed value of US$10.2b across 24 ventures in Australia, China, Singapore, Indonesia, Malaysia, Vietnam, India and New Zealand.
LOGOS is vertically integrated and manages every aspect of logistics real estate, from sourcing land or facilities, to undertaking development and asset management, on behalf of leading global real estate investors.
ARA LOGOS Logistics Trust could tap into a sizeable acquisition pipeline with an AUM of US$10.2b, of which more than half is located in Singapore, Australia and China.

ARA LOGOS Logistics Trust has embarked on acquisitions and fund investments from LOGOS-managed ventures, which include:
1. five logistics properties in Brisbane, Australia, for S$225.9m; and
2. an investment of 49.5% interest in New LAIVS Trust and 40.0% interest in Oxford Property (OP) Fund, which have five logistics properties in New South Wales and Victoria, for S$178.5m.
Although the acquisitions dilute ARA LOGOS Logistics Trust's pro forma 1H20 distribution per unit by 2.8%, they:
1. increase geographical diversification by expanding the Australia portfolio from 32.5% to 47.6% of AUM;
2. increase the overall weighted average lease to expiry (WALE) by NLA from 2.8 to 4.6 years; and
3. deepen the presence in the defensive cold storage sector.
Assuming all existing unitholders take up their entitlement for the preferential offering, LOGOS’s stake in ARA LOGOS Logistics Trust will increase from 10.7% to 12.4%. Ivanhoe Cambridge has become a significant unitholder with a stake of 8.8%.

8 of ARA LOGOS Logistics Trust’s 10 properties in Singapore are ramp-up logistics warehouses with modern specifications, and they account for 97% of ARA LOGOS Logistics Trust’s total NLA in Singapore.
All 17 logistics properties in Australia are freehold and located in established industrial precincts along the eastern seaboard of Australia, such as Sydney, Melbourne, Brisbane and Adelaide. They provide organic growth with built-in rental escalation of 2-4% annually or pegged to the CPI.

ARA LOGOS Logistics Trust’s tenants are predominantly providers of third-party logistics (3PL). It has a diversified tenant base, with its top 10 tenants accounting for 52.6% of gross rental income as of Sep 20. DHL, DB Schenker and FedEx, which are global leaders in 3PL, are among its top 10 tenants.

ARA LOGOS Logistics Trust could tap into a sizeable acquisition pipeline with an AUM of US$10.2b, of which more than half is located in Singapore, Australia and China.
ARA benefits from LOGOS’ extensive development capabilities and expertise. It can tap into LOGOS’ enlarged network of tenants (such as Toll Group, DHL, Linfox Logistics, Alibaba Group, Renewable Energy Corporation and Kerry Logistics) and investors, including a large pool of institutional investors.

Re-initiate coverage on ARA LOGOS Logistics Trust with BUY. See the 16-page PDF report attached below for complete analysis. Our target price is based on the dividend discount model (DDM) (cost of equity: 6.75%, terminal growth: 1.0%).
See
We forecast distribution of 4.9 cents/unit each for 2021 and 2022. ARA LOGOS Logistics Trust provides attractive distribution yield of 8.1% and yield spread of 7.3% for 2021-22. It trades at P/NAV of 1.07x vs peers’ 1.48x.
Catalysts to share price:
- Acquiring more logistics properties in Singapore, Australia and Malaysia from sponsor LOGOS Property Group.
- ARA LOGOS Logistics Trust benefits from yield compression as its logistics portfolio and market capitalisation expand and trading liquidity improves over time.
ARA LOGOS Logistics Trust is one of the laggard S-REITs with attractive yield spread. See report: Singapore REITs - UOB Kay Hian 2020-01-11: Laggard S-REITs Have Potential To Outperform.

Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2021-01-06

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