Does ARA Logos Logistics Trust (SGX:K2LU)'s 8.75% Dividend Yield Look Attractive?


ARA Logos Logistics Trust (SGX: K2LU) has recently announced its 3Q 2020 financial results. Its DPU was up 11.3% year-on-year and it is currently trading at 8.75% yield based on the last traded share price of $0.59.


Key Highlights:


  • Distribution per unit (DPU) and Dividend Yield (8.75%)

  • Price to book ratio (1.0)

  • Gearing (40.5%)

  • Interest coverage ratio (3.7x)

  • Portfolio occupancy rate (97%)

  • Growth catalyst


Background of ARA Logos Logistics Trust


ARA LOGOS Logistics Trust (SGX: K2LU) is a REIT that invests in income-producing real estate used for logistics purposes. It was previously known as Cache Logistics Trust and was listed on the Singapore Stock Exchange on 12 April 2010.


On 5 March 2020, ARA Asset Management completed its acquisition of a majority stake in LOGOS Group, one of Asia Pacific’s largest and fastest growing logistics real estate players. LOGOS operates as ARA’s exclusive platform for logistics real estate assets globally. The REIT renamed to ARA Logos Logistics Trust since then.


As at 30 June 2020, the REIT's portfolio comprises 27 high quality logistics warehouse properties strategically located in established logistics clusters in Singapore and Australia. Its portfolio is valued at approximately S$1.26 billion.


1. Distribution per unit and dividend yield


Based on its 9M2020 financial results, ARA Logos Logistics Trust's net property income dropped 7.9% to $41.3m. This was mainly due to $1m income retention and $5.5m one-off capital distribution in 2019. Excluding the one-off items, its net property income would have increased by 7.5%.


Based on its latest price, the REIT is currently trading at about 8.7% dividend yield. Historically, the REIT has been suffering declining DPU and share price over the past 8 years. While its current 8.7% dividend yield looks attractive, the declining DPU seems worrying and does not pass our criteria.


2. Price to book ratio


ARA Logos Logistics Trust is currently trading at 1.0 price to book ratio, which is very closed to its 8-year historical average.


3. Gearing


Portfolio leverage remains low at 40.5%, with an average debt tenor of 3.3 years. The REIT continues to maintain a well distributed debt profile, with about 10% of debt required to refinance in the next 2 years.

Mapletree Commercial Trust's Debt Profile

4. Interest coverage ratio


The REIT has an interest coverage ratio of 3.7 times, which is just below our preference of 4 times. Besides, the REIT maintains a low interest cost of 3.32%, with more than 68.1% of its debt is hedged with fixed rate.


5. Portfolio occupancy rate


Portfolio maintains high occupancy rate at 97%, with less than 4.4% leases up for renewal for the rest of the year.


6. Growth Catalyst


ARA Logos Logistics Trust is currently acquiring five logistics properties in Brisbane and another five properties in NSW and Victoria from its new sponsor for a total value of $404.4m. This will increase its AUM by 28.2%.


The REIT manager said that the latest acquisition of the 10 Australian properties will help the REIT to grow in the coming years.


Summary


ARA Logos Logistics Trust has been holding up well during this Covid-19 period. The recent acquisition will help to improve its portfolio resilience. However, its declining DPU does not pass our criteria. We will continue to monitor its DPU trend in the next few quarters.



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