RHB keeps 'buy' on ARA LOGOS Logistics Trust due to 'brighter outlook ahead'

RHB Group Research analyst Vijay Natarajan has kept his “buy” recommendation on ARA LOGOS Logistics Trust as he sees a “brighter outlook ahead” for the trust.

“ARA LOGOS Logistics Trusts’ portfolio of 27 strategically located logistics assets, across Singapore and Australia, stand to benefit from the expected rise in logistics demand,” he writes in a Jan 12 report.

Natarajan has also identified key share price catalysts to be “favourable demand-supply dynamics logistics assets, increased liquidity following its recent fund exercise and investors’ continued hunt for yields”.

To this, he has upped ARA LOGOS’ target price to 74 cents from 72 cents previously.

He has also raised his distribution per unit (DPU) estimates for FY2020-2022 by 1-4%, to factor in higher occupancy and rental growth.

Following its asset acquisitions in Australia in October 2020, Natarajan views the trust’s portfolio as “balanced”, with “the Singapore portfolio offering growth opportunities, and Australia offering income stability”.

“The [Australian] deal, though mildly dilutive, provides income stability from the portfolio’s long weighted average lease to expiry or WALE of 11.3 years, and organic growth from inbuilt rent reviews of 2.5-4% per annum. In addition, the acquisition of mainly freehold assets will lengthen the overall underlying land lease tenure to 29 years, from 24 years,” he says.

Post-acquisition, Australia will account for 48% of the trust’s total assets, up from the current 33%.

Natarajan also views the demand-supply dynamics turning favourable in Singapore, which is a positive for the trust.

“Demand for warehouse/logistics space in Singapore is still on the rise, on increased stockpiling, e-commerce trends, and the vaccine rollout,” he notes.

He highlights examples, including German logistics firm DB Schenker’s opening of its 550,000 sq ft warehouse at Airport Logistics to cater to the increase in regional air freight volume.

CBRE, he adds, in its 3Q report also noted that warehouse net absorption sustained its uptrend from the previous quarter.

To this, Natarajan says, “the positive effects are starting to show, with ARA LOGOS’ Singapore portfolio occupancy increasing 4.5 percentage points in 9MFY2020 to 98.7%, although rent reversion remains slightly negative at -1%.”

In 2021, Natarajan expects the trust to focus on boosting its operational performance and tapping into rising logistics demand.

“Medium-term acquisition opportunities include the remaining stake in New LAIVS Trust (49.5% stake currently) and Oxford Property Fund (40% stake),” he says.

As at 4.49pm, units in ARA LOGOS Logistics Trust are trading 0.5 cent lower or 0.7% down at 66.5 cents.