ARA LOGOS Logistics Trust - UOB Kay Hian 2021-10-08: The Hunter Or The Hunted?


ARA LOGOS Logistics Trust - The Hunter Or The Hunted?

  • ARA LOGOS Logistics Trust is able to grow organically riding on the expansion of 3PL and e-commerce in Singapore and Australia and via acquisitions tapping on its huge sponsor pipeline. We expect ARA LOGOS Logistics Trust to benefit from cap rate compression from 5.1% to 4.5% in Australia, which increases NAV per unit by 7% to S$0.73.
  • ESR Cayman’s acquisition of ARA Asset Management raises the prospects of ARA LOGOS Logistics Trust being acquired by ESR-REIT to prevent conflict of interest.
  • Re-iterate BUY rating on ARA LOGOS Logistics Trust.

ARA LOGOS Logistics Trust is riding on twin engines of growth.

  • ARA LOGOS Logistics Trust (ALLT, SGX:K2LU) benefits from strong leasing enquiries in both Singapore and Australia. Management expects neutral to mild positive rental reversion for 2H21:
    1. Singapore: Expect recovery in occupancy. ARA LOGOS Logistics Trust’s Singapore portfolio benefits from growth in 3PL and e-commerce. According to CBRE, rents for prime logistics space have increased 5.1% y-o-y to S$1.43psf/month in 2Q21. ARA LOGOS Logistics Trust has backfilled the transitory vacancy at Commodity Hub. There is strong demand for cold storage warehouse space from supermarket operators for storage of frozen food and safety stock, which will boost occupancy at ARA LOGOS Logistics Trust’s Cold Centre. We expect occupancy for its Singapore portfolio to improve by 1.3ppt q-o-q to 98.0% in 3Q21.
    2. Australia: Organic growth from rental escalation. Leasing enquiries have risen to a 20-year high driven by 3PL and omni-channel retailers. Government stimulus for housing and infrastructure have also boosted demand from the construction and manufacturing industries. We expect the Australian portfolio to maintain high occupancy of 99.7% in 3Q21. ARA LOGOS Logistics Trust’s Australian portfolio benefits from a long WALE of 6.3 years (weighted by gross rental income) and annual rental escalation of 1-4%.

Actively working on potential acquisitions.

  • ARA LOGOS Logistics Trust has an open invitation to view properties at S$82.7m for its 2H21 results. Hence, NAV per unit is expected to increase by 7% to S$0.73 by Dec 21. We estimate that aggregate leverage would be lowered by 1.4ppt to 38.1%.

ARA LOGOS Logistics Trust could be a potential takeover target.

  • ESR Cayman is acquiring ARA Asset Management for US$5.2b. It owns 67% of ESR Nareit Developed Asia Index with effect from 20 Sep 21. Trading liquidity has improved tremendously. Average daily turnover has increased from US$1.3m in Jan 21 to current US$3.8m.

ARA LOGOS Logistics Trust - Valuation & Recommendation

Jonathan KOH CFA UOB Kay Hian Research | 2021-10-08
SGX Stock Analyst Report BUY MAINTAIN BUY 1.07 UP 1.020