ARA LOGOS Logistics Trust Adding 10 Properties in Australia at 5.0% NPI Yield

• ARA LOGOS Logistics Trust (SGX:K2LU) has accelerated its overseas expansion with its new sponsor; its SGD404.0m deal to acquire five logistics properties and invest in two funds at 5.0% NPI yield should boost its AUM by 28.2%, and deepen its Australian contribution from 32.5% to 47.6%.
• While DPU and NAV dilutive, ARA LOGOS Logistics Trust's DPU visibility should improve from the assets’ long 11.3-year WALE. We maintain our forecasts and DDM-based Target Price (COE: 8.7%, LTG: 1.5%), pending deal closure.
• For now, ARA LOGOS Logistics Trust's valuations are compelling at 8+% FY21 dividend yield, with catalyst from a stronger-than-expected DPU recovery. BUY.

Announces Maiden Deal With New Sponsor

• ARA LOGOS Logistics Trust has proposed to acquire from its sponsor five logistics assets in Australia for SGD225.9m and also invest SGD178.5 in two property funds; a 49.5% interest in New LAIVS Trust and a 40.0% interest in Oxford Property Trust which together hold another five properties.
• All properties are well-placed across essential economic hubs in Australia’s east coast. They are 97.0% occupied and backed by an 11.3-year WALE by NLA, with the leases embedded with +2.5-4.0% pa rental escalations. Five assets or 45.3% of the total 1.0m sqm are freehold, with the rest (four in the Port of Brisbane) sited on long-dated ground-leases of 39-51 years remaining.

Strong Tenancies, Longer WALE Lifts DPU Visibility

• Leases for the portfolio are backed by established tenancies; all are new and should help in diversification while strengthening its exposure to the resilient cold storage sector. Its submarket vacancies at 2.4-5.8% are below the industry’s 3.3-5.8% and could tighten further, driven by favourable demand-led fundamentals underpinned by rising e-commerce growth.
• We expect ARA LOGOS Logistics Trust's DPU visibility to improve from its longer portfolio WALE, which jumps from 2.8 years to 4.6 years post-deal.

DPU, NAV Dilution Is a Slight Negative

• Management expects to fund the acquisition through both debt and new equity to be supported by its sponsor (up to SGD18.7m) and vendor (SGD70.0m), with its leverage expected to rise from 40.4% to 42.9% post-deal.
• While DPU and NAV dilutive at 1.9% and 2.2%, ARA LOGOS Logistics Trust has gained scale and is eyeing longer-term valuation upside with the assets’ attributes.

Source: Maybank Kim Eng Research - 26 Oct 2020