ARA LOGOS Logistics Trust (ALOG) is deploying its growth strategy, particularly in Australia, say analysts.
The trust’s 9MFY2020 results came in largely within expectations, note CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee in an Oct 26 note, with ALOG’s 9MFY2020 distribution per unit (DPU) of 3.784 cents coming in largely in line at 79% of their full-year forecast.
Eing and Lock are maintaining their “add” call on the trust, with a reduced target price of 69.8 cents from 71.3 cents.
ARA Logos Logistics Trust is a Singapore-based REIT that invests in income-producing real estate used for logistics purposes in Asia-Pacific, as well as real estate-related assets.
In 3QFY2020, ALOG released another $1 million (on top of $0.5 million released in 2QFY2020) of the $2.5 million income retained from 1QFY2020, note Eing and Lock. 9MFY2020 revenue increased 1.1% y-o-y to $87.3 million while net property income (NPI) improved 2.2% y-o-y to $66.8 million.
See: ARA LOGOS Logistics Trust acquires properties and fund investments in Australia for total consideration of $404.4 mil, first since rebranding
Distributable income, however, declined 7.9% due to the one-off distribution and capital distribution in 9MFY2019. Excluding these and including $1 million remaining retained income, distributable income would have been +7.5% y-o-y while DPU increased 7% y-o-y.
See also: ARA Logos Logistics Trust reports higher 2Q20 DPU of 1.326 cents
Despite Covid-19, ALOG’s revenue and NPI improved 1.8% and 4.6% respectively q-o-q in 3Q20, mainly due to commencement of new leases. Eing and Lock highlight that 9M20 rental reversion came in at -1% vs. the -0.5% in 1H20, dragged down by -9.4% reversion from one lease executed in 3Q20. Committed occupancy remained high at 97%.
Australia acquisitions
On Oct 26, the trust said it has acquired five logistics properties in Brisbane, Australia for a purchase consideration of some $225.9 million, making this the first acquisition for the trust since its rebranding.
Previously known as Cache Logistics Trust, the transfer of ARA Asset Management’s entire stake in the REIT manager and 10.3% shareholding to LOGOS on Apr 28 saw the REIT renamed to ARA LOGOS Logistics Trust.
ALOG proposed a total acquisition outlay of $441.2 million to acquire two warehouses, one hardstand, one distribution centre and one cold storage, Heron (under construction), in Brisbane; 49.5% interest in New LAIVS Trust which holds four distribution centres; and 40% of Oxford Property Fund (OP Fund) which holds one cold storage.
It will fund the acquisitions through equity and borrowings. Blended NPI yield works out to be 5%. The acquisition will dilute its DPU by 1.9% and raise gearing to 42.7% from 40.1% as at end-June.
Post-acquisition, ALOG’s asset under management (AUM) will rise to $1.7 billion, and its Australia exposure will rise from 32.5% to 47.6%, lifting weighted average lease expiry (WALE) from 2.8 years to 4.6 (new portfolio WALE: 11.3 years).
It will also gain exposure to the transport and shipping industry, and higher exposure to more established corporations. The assets come with built-in annual rental reviews of 2.5-4% p.a. or pegged to consumer price index (CPI). Portfolio occupancy excluding rental top-ups or guarantees is high at approximately 97%.
While the acquisitions would be dilutive, Eing and Lock note that the new assets will provide ALOG further income stability and geographical diversification. “It is also timely in view of the low interest rate environment and tightening transaction yield in Australia.”
“We trim our FY21-22 DPU forecasts by 0.7-1.6% to factor in the acquisitions. We like ALOG for its exposure in logistics/warehouse real estate. Potential re-rating catalyst/downside risks include better/weaker-than-expected rental reversion,” say Eing and Lock.
To RHB analyst Vijay Natarajan, ALOG’s “sizeable” acquisition of 10 Australian assets demonstrates sponsor LOGOS’ ability to grow the REITs portfolio with quality assets. He maintains his ‘buy’ call on the trust with a target price of 72 cents.
Calling the acquisitions a “transformational deal”, Natarajan points out that ACFS (Australia’s largest privately owned container logistics operator) and IPS logistics will become part of the top 10 tenants, accounting for 12% of total rental income.
“Despite a mildly dilutive transaction, we like the deal for its long WALE (11.3 years) with built-in rent escalations and tenant quality. ALOG also has a right of first refusal to acquire the remaining fund stake, providing room for growth,” says Natarajan.
“Post-transaction, gearing stands at 42.9% from 40.4% currently. We revised our FY21-22F DPU by -2%, factoring in the equity fund raising. We also have lowered by 50bps our assumptions, resulting in the cost of equity of 8.1%,” says Natarajan.
As at 11.48am, units in ARA LOGOS Logistics Trust are trading 1 cent higher, or 1.64% up, at 62 cents.
