Riding on firm demand

  • 3QFY21 DPU (-9% yoy) came in line, at 77% of our full-year forecast.
  • ALOG delivered stronger portfolio rental reversion and stable occupancy.
  • Reiterate Add. Strong demand will support rental reversion.

Acquisition drove 3QFY21 performance

ARA LOGOS Logistics Trust’s (ALOG) 3Q21 revenue increased 15.1% yoy to S$34m and NPI rose by 13.9% yoy to S$26.1m. The stronger yoy results were mainly driven by incremental revenue from the Australian portfolio acquisition (completed in Apr 2021), commencement of new leases, and a relatively stronger A$. This was partially offset by the divestment of Kidman Park in Australia and ALOG Changi DistriCentre 2 in Singapore. 3QFY21 distribution of S$19.3m (including capital distribution of S$0.8m) was 20.9% higher yoy, on higher NPI and contribution of S$2.5m from ALOG’s investment in the New LAIVS Trust and Oxford Property Fund. 3QFY21 DPU was 9% lower yoy at 1.33 scts, bringing 9MFY21 DPU to 3.90 scts, in line at 76.9% of our full-year forecast.

Continue to deliver stronger rental reversion

ALOG continued to deliver stronger positive rental reversion of +3.2% in 9M21 (+2.4% in 1H21). ALOG has renewed most of its lease expiries, with 3.5% of GRI remaining in 2021. With the acquisition of the Australian portfolio, ALOG’s portfolio WALE is lengthened significantly to 4.6 years by GRI. Its portfolio occupancy declined slightly from 98.2% in 2QFY21 to 97.6% in 3QFY21, due to lower occupancies in both Singapore (-0.3% pts to 96.4%) and Australia (-0.9% pts to 98.8%). If the new lease commitment at ALOG Commodity Hub Singapore commenced in Oct 2021 is taken into account, portfolio occupancy would have been 98.6%. In Australia, the lower occupancy was due to the lease expiry of a shipping and logistics tenant. We understand that ALOG is in advanced negotiation with a tenant which is expanding to take up the space. ALOG’s portfolio valuation as at 30 Sep 2021 declined 0.5% (vs. as at 30 Jun 2021) due to weaker valuation in Singapore (-0.3%) and Australia (-0.7% in S$, but +3.1% in A$). Australia portfolio’s cap rate compressed from 5.1% as at Jun 2021 to 4.4% as at Sep 2021, while Singapore portfolio’s cap rate remained unchanged.

Reiterate Add, at a higher TP of S$0.978

We raise our DDM-based TP to S$0.978 as we rollover our valuation to FY22F. The steady performance is a reflection of the positive outlook of the resilient logistics sector, supported by long-term structural shifts in areas such as e-commerce and supply chain. We expect the moderate supply, tightened vacancy rates and firm demand to continue to support the rental reversions of prime logistics/warehouses in Singapore. In Australia, there has been surge in online/e-commerce usage, as well as increasing investment in supply-chain drivers, which will in turn drive demand for quality industrial space. The merger with ESR REIT to create a larger entity would help to accelerate inorganic growth. Catalyst/downside risks include accretive acquisitions/weaker rental growth.