CGS-CIMB Research is keeping its “add” recommendation on ARA LOGOS Logistics Trust (ALOG) with a target price of 71.3 cents, as the stock is trading at an attractive 7.6% yield.
In an Oct 14 report, analyst Eing Kar Mei is positive on the trust’s assets following a site visit to three of ALOG’s assets – DHL Supply Chain Advanced Regional Centre (DHL Centre), Changi DistriCentre 1 (CD1) and Commodity Hub (CH).
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DHL Centre is DHL’s first innovation centre outside of Germany. It is a state-of-the-art property awarded with Leed Gold Certification and equipped with an automation system. Compared to a traditional warehouse, the centre is built with unique specifications that include higher floor-to-ceiling height of 13.6m with compatible floor loading and sprinkle system. It also has a cold room and clean rooms to cater to different industry needs.
Meanwhile, CH has a ramp adjoining two buildings, large floor plates and multiple loading bays, creating greater efficiency for its tenants. CD1 is a six-level ramp-up property which is mainly tenanted by international logistics specialists due to its location near major expressways.
“We also saw the cold rooms built by ALOG for its tenants to enhance tenant stickiness. The ability to customise assets based on tenant requirements demonstrates ALOG’s strength as a logistic/warehouse real estate landlord. We believe with LOGOS onboard, ALOG could duplicate its success in this area. It was also encouraging to hear directly from the tenants we visited that they are seeing good demand and looking for expansion,” notes Eing.
In the meantime, ALOG’s expansion will likely be focused in Singapore and Australia where it already has a presence, and has mostly achieved income stability.
Instead of divesting assets, the trust said that it will focus on growing the portfolio within the same asset class.
“Based on our analysis, to make an accretive acquisition, ALOG could fund a $300 million deal at a 5.5-6% acquisition yield with 55% debt funding which would give a 1-3% DPU accretion in FY2021,” says Eing.
The management continues to see strong demand for warehouse/logistic real estate driven by solid growth in ecommerce and tapering supply, particularly in Australia due to the country’s larger population base. It also believes that it has retained more than sufficient income for potential impact from Covid-19.
Overall, the analyst believes that the successful acquisition of accretive asset without straining the balance sheet would help to rerate the stock.
As at 4.25pm, units in ALOG are trading at 64 cents or 1.1 times FY20 book with a dividend yield of 7.6%.
