UOB Kay Hian Research analysts Jonathan Koh and Loke Peihao have re-initiated coverage of ARA LOGOS Logistics Trust (ALOG) with a “buy” rating and target price of 85 cents.
Koh and Loke highlighted ALOG’s acquisition of majority control of LOGOS Property Group (LOGOS), which became its global logistics real estate arm.
“ARA Asset Management has acquired majority control of LOGOS Property Group (LOGOS), which became its global logistics real estate arm. It has injected ARA LOGOS Logistics Trust Management (manager of ALOG) and its 10.7% stake in ALOG into LOGOS,” they note.
LOGOS has also extended an open invitation for ALOG to view all its logistics properties in the Asia Pacific region. As such, the analysts said ALOG could tap into a sizeable acquisition pipeline with assets under management (AUM) value of US$10.2 billion ($13.4 billion), of which more than half is located in Singapore, Australia and China.
They also think that this maiden acquisition post-reorganisation enhances ALOG’s scale, and noted that ALOG has embarked on acquisitions and fund investments from LOGOS-managed ventures, including five logistics properties in Brisbane, Australia, for $225.9 million.
In addition, it also made an investment of 49.5% interest in New LAIVS Trust and 40% interest in Oxford Property (OP) Fund, which have five logistics properties in New South Wales and Victoria, for $178.5 million.
Although the acquisitions dilute pro forma 1H2020 distribution per unit (DPU) by 2.8%, they increase geographical diversification by expanding the Australia portfolio from 32.5% to 47.6% of AUM
It also increases the overall weighted average lease to expiry (WALE) by Net Lettable Area (NLA) from 2.8 to 4.6 years, and deepens the presence in the defensive cold storage sector.
Separately, the analysts said ALOG has “quality modern logistics properties underappreciated by investors”, and elaborated that eight of ALOG’s 10 properties in Singapore are ramp-up logistics warehouses with modern specifications, accounting for 97% of its total NLA in Singapore.
All 17 logistics properties in Australia are freehold and located in established industrial precincts along the eastern seaboard of Australia, such as Sydney, Melbourne, Brisbane and Adelaide. They provide organic growth with built-in rental escalation of 2-4% p.a. or pegged to the CPI.
Furthemore, the blue chip tenants of ALOG’s properties are leaders in third party logistics (3PL). Koh and Loke said it has a diversified tenant base, with its top 10 tenants accounting for 52.6% of gross rental income as of Sept 2020. DHL, DB Schenker and FedEx, which are global leaders in 3PL, are among its top 10 tenants.
As at 11.32 am, ALOG was trading at 63 cents, with a FY2020 price to book ratio of 1 and dividend yield of 8.2%
