ARA LOGOS Logistics Trust - RHB Invest 2021-05-05: A Rising Logistics Star

ARA LOGOS LOGISTICS TRUST (SGX:K2LU)

ARA LOGOS Logistics Trust - A Rising Logistics Star

ARA LOGOS Logistics Trust - A pure-play on rising logistics demand in Singapore and Australia.
Backed by LOGOS Group, a leading logistics player in the Asia Pacific (APAC).
High FY21F dividend yield of ~7%.

ARA LOGOS Logistics Trust (SGX:K2LU) is an S-REIT managed by ARA LOGOS Logistics Trust Management. As at 31 Dec 2020, ARA LOGOS Logistics Trust’s portfolio comprised 27 high-quality logistics warehouse properties, strategically located in established logistics clusters in Singapore and Australia. The portfolio has a total gross floor area of ~9.0m sqf, valued at ~S$1.28bn.

Demand for warehouse/logistics space in Singapore continues to be on the rise, as a result of increased stockpiling, e-commerce trends, and the vaccine rollout. On the supply front, based on JTC’s 4Q data, ~800msqm of new warehouse space is expected to come on stream in 2021-2022 vs the last five years’ average supply of 500m sqm, and demand of 400m sqm.
In Australia, strong demand from the transport and e-commerce boom continues to drive logistics demand. As a result, ALOG’s portfolio occupancy has been on a steady quarterly uptrend, rising 3.2ppts in FY20 to 98.5% (Singapore: 98.7%, Australia: 98.3%). Rent reversions were also better than expected, at 4.8% in FY20 (2H20: 9.8%), the bulk of which came from the signing of long lease by its key tenant DB Schenker.

ARA LOGOS Logistics Trust in Oct 2020 announced proposed acquisition of five properties in Brisbane, Australia (including a development asset which is expected to be completed in Nov 2021) for S$ 225.9m. In addition it has also made a 49.5% /40% fund investment in New LAIVS Trust (LT) and Oxford Property Fund (OP) which combined owns five logistic properties for S$ 178.5m.
ARA LOGOS Logistics Trust recently completed acquisition of Laprinta property and fund investments and waiting the final approval for its acquisition of remaining Brisbane assets. The assets’ blended NPI yield of 5% is better than recent transactions of Australian logistic assets as cap rates have compressed by 20-50bps in recent months. The transaction, though mildly dilutive to DPU yield, lends income stability with a long weighted average lease expiry or WALE of 11 years, and balances shorter land leases for its Singapore assets. Post-acquisition, Australia will account for 48% of ARA LOGOS Logistics Trust's total assets, up from 33% currently, in line with ARA LOGOS Logistics Trust’s stated objective of diversifying out of Singapore.

ARA LOGOS Logistics Trust’s sponsor, LOGOS currently manages a US$10.9bn AUM logistics portfolio across APAC, presenting good opportunity for acquisition-led growth. Post-acquisition gearing is slightly on the high side at 42.9%, indicating that future acquisitions are likely to be a mix of debt and equity. Medium-term acquisition opportunities include the acquisition of the remaining stake in LT (49.5% stake currently) and OP (40% stake).

Trading at 7% dividend yield. ARA LOGOS Logistics Trust's FY20 adjusted DPU (excluding capital and one-off distributions) grew 8.8% y-o-y on the back improved occupancy, as well as additional revenue from DHL Supply Chain's Advanced Regional Center or ARC. DPU growth ahead will be driven by higher rents and a further uplift in occupancy, with room for further inorganic growth from acquisitions.
Gearing on the high side, but not a concern. ARA LOGOS Logistics Trust’s post-acquisition gearing of 43% is on the higher side, compared to its peers. However, we see no balance sheet concerns as the interest coverage ratio remains healthy at 4x.

The logistics sector has emerged as one of the key beneficiaries post COVID-19, with structural demand growth seen from e-commerce, stockpiling, and the vaccine rollout – and ARA LOGOS Logistics Trust’s strategically located 27 assets in Singapore and Australia stand to benefit.
ARA LOGOS Logistics Trust offers an attractive yield of 7%, and its strong sponsor pipeline offers growth visibility in the medium term.
See
ARA LOGOS Logistics Trust (SGX:K2LU) is one of the Top Singapore Small Cap Companies highlighted in RHB's 20 Jewels 2021 Edition.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2021-05-05

SGX Stock Analyst Report BUY MAINTAIN BUY 0.78 SAME 0.78