ARA LOGOS Logistics Trust - UOB Kay Hian 2021-01-28: 2H20 An Epic & Transformational Year

ARA LOGOS LOGISTICS TRUST (SGX:K2LU)

ARA LOGOS Logistics Trust - 2H20 An Epic & Transformational Year

ARA LOGOS Logistics Trust's 2H20 DPU was 15% above our expectations due to positive rental reversion of 9.8% driven by Singapore and improvement in occupancy of 3.6ppt q-o-q to 98.3% for Australia.
Year 2020 was transformational with LOGOS installed as the new sponsor and ARA LOGOS Logistics Trust embarking on its first acquisition post-reorganisation. We expect continued transformation and expansion as ARA LOGOS Logistics Trust taps on its sponsor pipeline.
ARA LOGOS Logistics Trust's distribution yield is attractive at 7.1% for FY21. Re-iterate BUY.

ARA LOGOS Logistics Trust (SGX:K2LU) reported 2H20 DPU of 2.937 cents, up 8.9% y-o-y.

ARA LOGOS Logistics Trust released S$2m of distributable income previously retained and provided a one-off capital distribution of S$1.3m during 2H20. 2H19 performance included one-off distribution of S$3.4m from the divestment of Jinshan Chemical Warehouse and capital distribution of S$1.1m.
On a comparable basis, excluding capital and one-off distributions, ARA LOGOS Logistics Trust's 2H20 DPU would have increased by a higher 16.3% y-o-y.

Gross Revenue and NPI have increased 8.6% and 10.7% respectively due to the commencement of new leases at ALOG Commodity Hub, ALOG Gul LogisCentre and ALOG Changi DistriCentre 1 and DHL’s expansion at DHL Supply Chain ARC.
Occupancy for Singapore was stable at 98.7%. Occupancy for Australia improved 3.6ppt q-o-q to 98.3% in 4Q20.
ARA LOGOS Logistics Trust’s portfolio achieved significant positive rental reversion of 9.8% in 2H20, driven by successful renewal of a long-term lease with Schenker Singapore for 51 Alps Avenue.

ARA LOGOS Logistics Trust's Interest expense declined 12.5% y-o-y due to lower interest rates and refinancing of A$140m term loans in Feb 20. Average cost of borrowings dropped 0.7ppt y-o-y to 3.2%. Aggregate leverage edged lower by 1.5ppt q-o-q to 39%. Besides a small loan of S$53m due this year, ARA LOGOS Logistics Trust has no refinancing till 2023.

Third-party logistics (3PL) and e-commerce players have significantly contributed to strong leasing demand for warehouses, which generated higher rents in 4Q20, thus bringing rental levels back to pre-COVID-19 levels. In Australia, rapid growth in e-commerce has resulted in many retailers looking at supply chain expansion.

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. 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 pro forma 1H20 DPU 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%.

We raised our ARA LOGOS Logistics Trust's 2021 DPU forecast by 3.9% to 5.0 cents due to positive rental reversion in Singapore and higher occupancy in Australia. ARA LOGOS Logistics Trust provides attractive distribution yield of 7.1% and yield spread of 6.1% for FY21.
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.
ARA LOGOS Logistics Trust's share price trades at P/NAV of 1.18x compared to peers’ 1.5x. Maintain BUY. Our target price of S$0.89 is based on the DDM (COE: 6.75%, terminal growth: 1.0%).
ARA LOGOS Logistics Trust's share price catalysts:
- ARA LOGOS Logistics Trust 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 ading liquidity improves over time.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-01-28

SGX Stock Analyst Report BUY MAINTAIN BUY 0.850 SAME 0.850