ARA LOGOS Logistics Trust 1H21 - UOB Kay Hian 2021-07-23: Continued Transformation By Tapping On Sponsor Pipeline

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ARA LOGOS LOGISTICS TRUST (SGX:K2LU)

ARA LOGOS Logistics Trust 1H21 - Continued Transformation By Tapping On Sponsor Pipeline

• ARA LOGOS Logistics Trust’s 1H21 results demonstrated resiliency with positive rental reversion of 2.4% and healthy occupancy of 98.2%. It successfully completed its maiden acquisition from LOGOS on 16 Apr 21. ARA LOGOS Logistics Trust has access to a sizeable sponsor pipeline of more than US$16b, of which more than half is located in Singapore, Australia and China. It is a potential candidate for inclusion in FTSE EPRA Nareit Developed Asia Index.
• ARA LOGOS Logistics Trust's distribution yield is attractive at 6.1% for FY22. Maintain BUY. Target price: S$1.02.

ARA LOGOS Logistics Trust's 1H21 results

• ARA LOGOS Logistics Trust (SGX:K2LU) reported DPU of S$0.0257 (+10.6% y-o-y), which is in line with our expectations. Excluding distributable income of S$2m retained in 1H20 and capital distribution of S$0.6m in 1H21, DPU growth would be 0.7% y-o-y.

Growth driven by Australia.

• ARA LOGOS Logistics Trust's gross revenue and NPI grew 15.2% and 17.1% y-o-y respectively due to acquisitions of five logistics properties in Brisbane, 49.5% interest in New LAIVS Trust and 40.0% interest in Oxford Property Fund in Australia completed on 16 Apr 21 and appreciation of the Australian dollar against the Singapore dollar of 4.9% y-o-y.

Acquisition lengthened WALE in Australia.

• ARA LOGOS Logistics Trust's portfolio WALE by NLA has lengthened from 2.8 years to 4.4 years. WALE for Australia portfolio increased from 2.5 years to 10.6 years driven by the newly acquired logistics properties.

Renewal for leases expiring in 2021 largely completed.

• ARA LOGOS Logistics Trust achieved positive rental reversion of 2.4% for new and renewed leases of 127,300sqm in 1H21. Leases expiring in 2H21 accounted for only 3% of total NLA.
• Portfolio occupancy eased 0.9ppt q-o-q but remains healthy at 98.2%. Occupancy for Singapore dropped 2ppt q-o-q to 96.7% due to lease expiry at Commodity Hub. Management has lined up a few prospective tenants and the vacant space is expected to be backfilled in 2H21. Occupancy for Australia remains high at 99.7%.

ARA LOGOS Logistics Trust undertook a mid-year revaluation exercise.

• It recognised change in fair value for investment properties and property funds of S$143.4m. ARA LOGOS Logistics Trust benefitted from the compression of cap rates led by logistics properties in Australia. NAV per unit has increased 17.5% to S$0.67 in 1H21.

Optimistic outlook for Singapore and Australia.

• In Singapore, demand for Australia, leasing enquiries has reached a 20-year high. Vacancy is expected to tighten further. The transition from just-in-time to just-in-case supply chains will lead to increased demand for logistics space.

Optimising portfolio and recycling capital.

• ARA LOGOS Logistics Trust has completed two divestments in 2Q21:
  1. sale of ALOG Changi DistriCentre 2 located at 3 Changi South Street 3 for consideration of S$16.7m, and
  2. sale of Kidman Park located at 404-450 Findon Road, South Australia for consideration of A$41.5m (S$42.6m).
• ARA LOGOS Logistics Trust recognised a small and quality portfolio.

Prudent capital management

• ARA LOGOS Logistics Trust repaid borrowings of S$53m due in 2021 using the proceeds from 0.6ppt y-o-y to 2.9%.

Maintaining portfolio competitiveness and defensiveness.

• ARA LOGOS Logistics Trust will invest S$5.1m for defensive AEI works for five logistics properties in Singapore, which is expected to be completed in 2021.

VALUATION/RECOMMENDATION

• We raised our ARA LOGOS Logistics Trust's 2021 and 2022 DPU forecast by 2% due to lower cost of debts.
• Maintain BUY. Our target price of S$1.02 for ARA LOGOS Logistics Trust is based on the dividend discount model (cost of equity: 6.5% (previous: 6.75%), terminal growth: 1.5% (previous: 1.0%)).
• See
  • ARA LOGOS Logistics Trust's Share Price,
  • ARA LOGOS Logistics Trust's Target Price,
  • ARA LOGOS Logistics Trust's Analyst Reports,
  • ARA LOGOS Logistics Trust's Dividend History,
  • ARA LOGOS Logistics Trust's Announcements,
  • ARA LOGOS Logistics Trust's Latest News.

Transformation in progress.

• ARA LOGOS Logistics Trust has re-rated and gained 45% since our initiation in Jan 21. See report: ARA LOGOS Logistics Trust - UOB Kay Hian 2021-01-06: New Platform Generates Growth & Yield Compression. Since then, daily trading liquidity has achievable.

Potential inclusion in FTSE EPRA Nareit Developed Asia Index.

• The investable market cap threshold for the FTSE EPRA Nareit Developed Asia Index was reduced from 0.3% to 0.1%. The free-float market cap criterion was lowered from US$1.2b to US$411m. Thus, ARA LOGOS Logistics Trust is eligible to be included in the FTSE EPRA Nareit Developed Asia Index based on the revised criteria.

Other 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 | https://research.uobkayhian.com/ 2021-07-23

SGX Stock Analyst Report BUY MAINTAIN BUY 1.02 UP 0.890