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BROKERS' TAKE

UOBKH restarts coverage of ARA Logos with 'buy' call, S$0.85 target price

It deems the counter a laggard play with an attractive yield spread over the next two years

Singapore

UOB Kay Hian (UOBKH) has re-initiated coverage on ARA Logos Logistics Trust with a "buy" recommendation and target price (TP) of S$0.85, as it deems the counter a laggard play with an attractive yield spread over the next two years.

In a report on Wednesday, analysts Jonathan Koh and Loke Peihao forecast a distribution per unit (DPU) of 4.9 cents each for 2021 and 2022. This translates to an attractive distribution yield of 8.1 per cent and yield spread of 7.3 per cent for 2021-2022, in their view.

Formerly known as Cache Logistics Trust, ARA Logos is managed by ARA Logos Logistics Trust Management, a wholly-owned subsidiary of logistics real estate developer Logos Group, in which ARA is a majority shareholder.

The trust owns 27 logistics properties in Singapore and Australia, with a total net lettable area (NLA) of 8.7 metres per square foot valued at S$1.26 billion as at September 2020.

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ARA Logos has embarked on a number of acquisitions and fund investments from Logos-managed ventures, including the purchase of five logistics properties in Australia and investments into two of the sponsor's funds. This will expand the trust's asset size by 28.2 per cent.

While these transactions are estimated to dilute ARA Logos's pro forma H1 2020 DPU by 2.8 per cent, the analysts remain positive on the deals which they believe will increase the trust's geographical diversification through the expansion of its Australia portfolio to 47.6 per cent to 32.5 per cent of assets under management (AUM), while also deepening its presence in the defensive cold storage sector.

The acquisitions will also raise the ARA Logos portfolio's overall weighted average lease expiry by NLA to 4.6 years from 2.8 years, they added.

"With Logos installed as the new sponsor, ARA Logos could tap on its expertise in the development of logistics properties and its sizeable acquisition pipeline of US$10.2 billion, of which more than half is located in Singapore, Australia and China," said Mr Koh and Ms Loke.

Also, the analysts like ARA Logos for the quality of its properties which they believe are "underappreciated" by investors.

This is considering the modern specifications of its ramp-up logistics warehouses in Singapore, as well as the organic growth provided by logistics properties in Australia, with built-in rental escalation of 2-4 per cent annually or pegged to the consumer price index.

"ARA Logos's tenants are predominantly providers of third-party logistics (3PL). It has a diversified tenant base, with its top 10 tenants accounting for 52.6 per cent of gross rental income as of Sept 20. DHL, DB Schenker and FedEx, which are global leaders in 3PL, are among its top 10 tenants," the analysts said.

Units of ARA Logos ended 64 Singapore cents or 7.6 per cent higher on Wednesday.

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