ARA LOGOS LOGISTICS TRUST (SGX:K2LU)
FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU)
MAPLETREE LOGISTICS TRUST (SGX:M44U)
Logistics S-REITs - Tailwind From E-Commerce & Building Resiliency In Supply Chains
- E-commerce is a key driver of demand as online retail sales require 3x the logistics space compared with brick & mortar retail sales. The transition from just-in-time to just-in-case supply chains is also expected to increase inventories by 5-10%.
- BUY Frasers Logistics & Commercial Trust (SGX:BUOU) (Target Price: S$1.79) and ARA LOGOS Logistics Trust (Target Price: S$0.89), which provide FY22 distribution yield of 5.6% and 6.2% respectively.
Growth in e-commerce creates demand for more logistics space.
- Online retailers are heavy-duty users of logistics space. Online retail sales are supported by 3x the logistics space required for brick & mortar retail sales. On average, every US$1b of retail sales creates demand for 1m sf of logistics space.
- All inventories are stored in the warehouse, including buffer stocks that are traditionally carried at physical retail stores.
- Online retailers offer greater variety of products (stock keeping units).
- Online retailers experience greater volatility of sales, which necessitate higher inventory levels. The variability is also exacerbated by promotional activities.
- Warehouse space is required for picking, packing and shipping parcels to consumers. Parcel shipping requires more logistics space than pallet shipping.
- Online order fulfilment includes value-added services, such as assembly and reverse logistics (returns processing), which requires additional space.
Speedy delivery is core advantage.
- Millennials and dual-income households expect convenience, choice, reliability and immediacy. Competition between online retailers is intense. Efficient logistics is important as online retailers are under constant pressure to reduce delivery time to meet expectations of demanding consumers. Same-day shipping is also increasingly becoming more popular.
Singapore ideal hub for e-commerce.
- Singapore is the world’s largest container transshipment hub, while Changi Airport is the largest air cargo hub in Temasek and Google, the e-commerce market in Southeast Asia is projected to expand by CAGR of 12.2% and exceed US$200b by 2025.
Building resiliency creates demand for more logistics space.
- The US-China trade conflict and COVID-19 pandemic have caused disruptions and exposed the vulnerabilities of lean just-in-time supply chains. Efforts to enhance resiliency will lead to increased demand for logistics space:
- Retailers need to hold higher concentration risks.
- Multi-national companies have adopted the “China+1” strategy to lead time.
Resilient despite the COVID-19 pandemic.
- Prime logistics rents increased 0.7% q-o-q to S$1.39psf pm in 1Q21. Occupancy rate improved by 2.3ppt to 89.8% in 1Q21 after hitting a trough of 87.5% in 1Q20. Net absorption was positive for the fourth consecutive quarter at 636,168sf in 1Q21. Prime logistics rents are expected to trend higher due to tight vacancy and strong demand.
Pipeline of new supply has moderated.
- The logistics market has the next four years (2021-24). The average annual supply is 2.18m sf, which is 51% lower than the 10-year historical average of 4.43m sf.
ARA LOGOS Logistics Trust (SGX:K2LU):
- About 70% of ARA LOGOS Logistics Trust (SGX:K2LU)’s logistics space is occupied by third-party logistics (3PL) providers such as DHL, Schenker, McPhee and FedEx.
- 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.
- Our target price of S$0.89 for ARA LOGOS Logistics Trustis based on the dividend discount model (DDM) (cost of equity: 6.75%, terminal growth: 1.0%).
- 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.
Frasers Logistics & Commercial Trust (SGX:BUOU):
- 31.4% of gross rental income from Frasers Logistics & Commercial Trust (SGX:BUOU)'s logistics portfolio is derived from tenants involved in e-commerce or e-fulfilment activities. The proportion has increased to 34% with the completion of the latest acquisitions.
- The acquisition pipeline provided by sponsor Frasers Property (SGX:TQ5) is valued at S$5.9b as of Sep 20, of which logistics & industrial properties in Australia, Austria, Germany and the Netherlands is valued at an estimated S$1,822m while business park properties in the UK is valued at an estimated S$1,432m.
- Our target price of S$1.79 for Frasers Logistics & Commercial Trust (SGX:BUOU) is based on DDM (cost of equity: 6.25%, terminal growth: 2.0%). Frasers Logistics & Commercial Trust (SGX:BUOU) provides a distribution yield of 5.7% for FY22, much more attractive than Mapletree Logistics Trust’s 4.2%.
- See Frasers Logistics & Commercial Trust Share Price; Frasers Logistics & Commercial Trust Target Price; Frasers Logistics & Commercial Trust Analyst Reports; Frasers Logistics & Commercial Trust Dividend History; Frasers Logistics & Commercial Trust Announcements; Frasers Logistics & Commercial Trust Latest News.
Mapletree Logistics Trust (SGX:M44U):
- Tenants engaged in e-commerce or e-fulfilment activities accounted for 30% of Mapletree Logistics Trust (SGX:M44U)’s revenue.
- The acquisition pipeline provided by sponsor Mapletree Investments is valued at S$1.4b for 15 completed projects (China: 14 and Vietnam: 1 ) and S$1.9b for 13 projects under development (China: 7, Malaysia: 1, Vietnam: 4 and Australia: 1 ).
- Our target price of S$2.08 for Mapletree Logistics Trust is based on DDM (cost of equity: 6.0%, terminal growth: 2.0%).
- See Mapletree Logistics Trust Share Price; Mapletree Logistics Trust Target Price; Mapletree Logistics Trust Analyst Reports; Mapletree Logistics Trust Dividend History; Mapletree Logistics Trust Announcements; Mapletree Logistics Trust Latest News.
SECTOR CATALYSTS
- Growth of e-commerce and online retail sales.
- Migration from just-in-time to just-in-case supply chains.
- Relocation of supply chains to Southeast Asia.
- Moderation in supply of new logistics space.
ASSUMPTION CHANGES
- We maintain our existing earnings forecast.
RISKS
- The COVID-19 pandemic has not affected the flow of goods between countries, and thus does not have a negative impact on demand for logistics space.
Jonathan KOH CFA
UOB Kay Hian Research
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https://research.uobkayhian.com/
2021-06-28
SGX Stock
Analyst Report
0.890
SAME
0.890
1.79
SAME
1.79
2.080
SAME
2.080
