ARA LOGOS Logistics Trust - CGS-CIMB Research 2020-04-28: Near-term Uncertainties Due To COVID-19


ARA LOGOS Logistics Trust - Near-term Uncertainties Due To COVID-19

  • ARA LOGOS Logistics Trust’s 1QFY20 DPU of 0.997 Scts (-34.1% y-o-y), came in below expectations as the company retained 20% of its income to conserve cash.
  • It renewed most of the leases due in FY20; no debt due this year.
  • Reiterate HOLD, as we see few catalysts due to potential COVID-19 impact.

Performance down y-o-y, but up q-o-q on higher occupancy

  • ARA LOGOS Logistics Trust (SGX:K2LU), rebranded from Cache Logistic Trust, reported a 1QFY20 revenue of S$28.8m (-6.6% y-o-y). Its NPI dropped by 7.3% y-o-y to S$22m, due to:
    1. conversion of Cache Gul LogisCentre from a master lease to multi-tenancy in Apr 2019,
    2. transitory vacancy downtime between leases,
    3. lower signing rents, and
    4. a weaker A$.
  • On a q-o-q basis, ARA LOGOS Logistics Trust’s revenue and NPI were up by 5.8% and 7.6% to S$28.8m and S$22m, respectively, underpinned by:
    1. higher occupancy levels (+1.8% pts q-o-q to 97.1%), and
    2. commencement of new leases.
  • Management indicated that more tenants are signing up for short-term leases for expansion recently. See ARA LOGOS Logistics Trust Announcements.

Retained 20% of its income for potential rental deferment

  • ARA LOGOS Logistics Trust retained ~20% (S$2.5m) of its distributable income in 1QFY20 to address potential rental deferments and/or waivers due to COVID-19. This resulted in a y-o-y DPU decline of 34.1% to 0.997 Scts, which accounted for 17.3% of our full-year forecast, despite 1QFY20 NPI accounting for 24% of our full-year forecast.
  • Excluding the S$2.3m one-off tax exempt distribution in 4Q2019 from the divestment of Jinshan and income retention in 1Q2020, 1QFY20 DPU would have grown by 10.1% y-o-y to 1.226 Scts. See ARA LOGOS Logistics Trust Dividend History.
  • The retained income works out to be less than half of its Singapore monthly rents, which the management believes is sufficient provision for now.

No debt due in FY20; low 8.1% remaining leases due in FY20

  • ARA LOGOS Logistics Trust has no debt due in FY20, with 69.6% of its total debt hedged. Forex exposure is minimal as it has hedged 92.5% of its distributable income. Gearing is at 40.8%, which still provides substantial headroom. Only 8.1% (down from 20.6% by income in 4QFY19) of its leases are up for renewal in FY20; these are likely to be renewed flat at best given the weak operating environment.
  • While no tenants have asked for rental rebates so far, we note that about 20 of its 45 tenants in Singapore have requested for rental deferment (one of the government’s efforts to provide relief to businesses from COVID-19 impact).

Reiterate HOLD, at a lower DDM-based target price of S$0.71

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-04-28
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.71 DOWN 0.76