SINGAPORE (July 8): CGS-CIMB Research is upgrading its recommendation on ARA LOGOS Logistics Trust (ALOG), formerly Cache Logistics Trust, to “add” from hold with a slightly increased target price of 71.3 cents from 71.0 cents previously.
This came following lead analyst Eing Kar Mei’s recent investor call with ALOG, which revealed that the trust has not seen a large impact from Covid-19 and the $2.5 million dividend retained in 1Q20 should be sufficient.
“With the past challenges behind the trust and timely onboarding of LOGOS, we believe ALOG is in a much better position to grow going forward,” says Eing in a Tuesday report.
Currently, the stock is trading at 0.98 times price-to-book, near 1.5 SD and below its five-year mean. It is also trading below the industrial sector average of 1.27 times and only slightly above the retail sub-sector average of 0.96 times price-to-book despite being in a more resilient sector.
Also, it offers one of the most attractive yields of over 8% among the REITs.
Meanwhile, ARA, ALOG’s major shareholder in March this year acquired a majority stake in LOGOS, a logistics specialist with operations across Asia Pacific and $9.6 billion property owned and under development.
“Other than its expertise in developing and managing logistics assets, LOGOS has a strong pipeline for ALOG to tap into to drive future growth, in our view. We understand that LOGOS has a good asset pipeline and talks on asset monetisation have been ongoing,” adds Eing.
LOGO’s large geographical exposure in Australia and Singapore also complements ALOG’s existing presence in both countries. ALOG has been expanding into Australia aggressively as e-commerce is seeing a strong demand there.
However, the analyst believes that the ability to make an accretive acquisition will depend on ALOG’s asset recycling capability and share price recovery. To make an accretive acquisition, she estimates that ALOG would need to fund a $300 million deal with 45% debt assuming an acquisition yield of 6.5%.
In the past, the trust’s NPI performance was affected by the strong warehouse supply in Singapore and the conversion of single-tenant to multi-tenant leases mainly due to the expiration of master leases inked during the IPO in 2010. But since 2015, it diversified into Australia to reduce is dependency on Singapore.
ALOG also lost its right of first refusal (ROFR) when CWT ceased to be a shareholder in 2018.
Additionally, the trust’s tapering warehouse supply from an average of 540,000 sq m per year to 140,000 sq m NLA over the next four years could support rentals.
Nonetheless, the analyst sees a clearer path ahead for ALOG as these challenges are now behind the trust and with the timely onboarding of LOGOS, ALOG is in a much better position to grow going forward.
“We believe any impact of Covid19 will be more felt in its 2Q20 results and ALOG should see more earnings clarity beyond 2Q. We expect favourable occupancy and rental rates going forward due to the tighter supply in the warehouse space,” says Eing.
As at 12.35pm, units in ALOG are trading 3.5% higher at 59 cents.
