ARA LOGOS LOGISTICS TRUST (SGX:K2LU)
ARA LOGOS Logistics Trust 1Q21 - Sustainable Growth & Transformation By Tapping On Sponsor Pipeline
- ARA LOGOS Logistics Trust’s 1Q21 business update continues to demonstrate a turnaround to sustainable growth. With LOGOS installed as its new sponsor, ARA LOGOS Logistics Trust has access to a sizeable acquisition pipeline with an AUM of US$10.2b, of which more than half is located in Singapore, Australia and China.
- We expect continued expansion as ARA LOGOS Logistics Trust taps on its sponsor pipeline.
- ARA LOGOS Logistics Trust provides an attractive distributio yield of 6.7% and yield spread of 5.1% for 2022. Maintain BUY. Target price: S$0.89.
ARA LOGOS Logistics Trust (ALLT)'s 1Q21 Results
- ARA LOGOS Logistics Trust (SGX:K2LU) reported DPU of 1.353 cents (+35.7% y-o-y), which is in line with our expectations. Excluding capital distribution of S$0.6m in 1Q21 and distributable income of S$2.5m retained in 1Q20, DPU would still have increased by a respectable 6.6% y-o-y.
Growth from continuation of positive rental reversion.
- Gross revenue and NPI grew 8.2% and 8.7% y-o-y respectively in 1Q21 due to:
- the commencement of new leases at several properties, such as Commodity Hub, Pandan Logistics Hub, ALOG Gul LogisCentre and Schenker MegaHub, and
- appreciation of the Australian dollar.
- ARA LOGOS Logistics Trust signed 601,900sf of leases during the quarter (renewals: 76%, new leases: 24%).
- ARA LOGOS Logistics Trust achieved positive rental reversion of 0.9%, driven by one lease in Singapore and two leases in Australia. Weight average lease expiry (WALE) by net lettable area (NLA) remained unchanged at 2.8 years.
Australia logistics portfolio near full occupancy.
- Portfolio committed occupancy improved 0.6ppt q-o-q to 99.1% in 1Q21. Occupancy for Singapore was stable at 98.7%. Occupancy for Australia improved 1.3ppt q-o-q to 99.6% as ARA LOGOS Logistics Trust secured a replacement tenant for a logistics property located in Queensland, Australia. Growth in Australia is supported by accelerated growth from e-commerce, which led to a pick-up in enquiries for additional logistics space.
Prudent capital management.
- ARA LOGOS Logistics Trust has secured revolving loan facilities of up to S$130m and term loan facility of A$120m to partially finance the acquisition of logistics properties from its sponsor, LOGOS Property Group.
- Besides a small loan of S$53m due this year, ARA LOGOS Logistics Trust has no refinancing till 2023. Aggregate leverage remains healthy at 37.4%. All-in cost of debt improved 0.13ppt q-o-q to 3.09%.
STOCK IMPACT
Completed maiden acquisition from new sponsor LOGOS Property Group.
- ARA LOGOS Logistics Trust has embarked on acquisitions and fund investments from LOGOS Property Group-managed ventures, which include:
- 5 logistics properties in Brisbane, Australia, for S$225.9m; and
- 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.
- The assets provide blended NPI yield of 5.0%. The acquisition increases geographical diversification by expanding the Australia portfolio from 35% to 51% of AUM. It was completed on 16 Apr 21.
Divesting ALOG Changi DistriCentre 2 in Singapore.
- ARA LOGOS Logistics Trust has entered into an agreement with PGI Holdings for the sale of ALOG Changi DistriCentre 2 located at 3 Changi South Street 3 for consideration of S$16.7m. It is a 3-storey cargo lift warehouse with an adjoining 4-storey office block with total NLA of 90,688sf. The sale consideration is 7.7% above valuation of S$15.5m conducted by CBRE.
Divesting Kidman Park in South Australia.
- ARA LOGOS Logistics Trust has entered into an agreement with 1835 Capital for the sale of Kidman Park located at 404-450 Findon Road, South Australia for consideration of A$41.5m (S$42.6m). It is a freehold property comprising a cold store warehouse space with ancillary offices with total NLA of 632,869sf. The sale consideration is 3.8% above CBRE’s valuation of A$40.0m (S$40.7m).
- These selective divestments of lower-performing properties with limited growth potential are in line with ARA LOGOS Logistics Trust’s strategy to recycle capital and build a more resilient and quality portfolio. Both divestments are expected to be completed in 1H21.
Decoupled from previous sponsor and unitholder CWT.
- CWT accounted for only 2.2% of gross revenue as of Mar 21, compared to 32.7% previously in Dec 17. The exposure to CWT was as high as 61% in 2012.
EARNINGS REVISION/RISK
- We maintain our existing DPU forecast for ARA LOGOS Logistics Trust
VALUATION/RECOMMENDATION
- Laggard with attractive yield spread. ARA LOGOS Logistics Trust provides attractive distribution yield of 6.7% and yield spread of 5.1% above 10-year Singapore government bond yield of 1.6% for 2022. It trades at P/NAV of 1.34x compared with peers’ 1.43x (FLT: 1.34x, MLT: 1.52x).
- Maintain BUY on ARA LOGOS Logistics Trust. Our target price of S$0.89 is based on the dividend discount model (DDM) (cost of equity: 6.75%, terminal growth: 1.0%).
- See
SHARE PRICE CATALYST
- ARA LOGOS Logistics Trust acquiring more logistics properties in Singapore, Australia and China 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.
Jonathan KOH CFA
UOB Kay Hian Research
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https://research.uobkayhian.com/
2021-04-28
SGX Stock
Analyst Report
0.89
UP
0.850
