ARA LOGOS Logistics Trust - DBS Research 2020-04-29: ARA Entering A New Era

ARA LOGOS LOGISTICS TRUST (SGX:K2LU)

ARA LOGOS Logistics Trust - ARA Entering A New Era

Cache Logistics Trust (SGX:K2LU) has changed its name to ARA LOGOS Logistics Trust (SGX:K2LU) to reflect combined capabilities from partnership.
Revenue increased 5.8% q-o-q to S$28.8m underpinned by higher occupancy.
DPU of 0.997 Scts; approximately 20% of distribution was retained in 1Q20.

Majority of leases expiring in FY20 have been renewed; only 8.1% of expiries remain for the year.

Cache Logistics Trust (SGX:K2LU) has announced a name change to ARA LOGOS Logistics Trust (SGX:K2LU) -
- To reflect the combined capabilities of ARA’s global fund management capabilities and LOGOS’s expertise in logistics.
- ARA has completed the sale of its entire stake in Cache Logistics Trust and the Manager to LOGOS.
- ARA will retain control of the Manager through its majority stake in LOGOS.

ARA LOGOS Logistics Trust's gross revenue of S$28.8m and NPI of S$22.0 were 5.8% and 7.6% higher q-o-q.
- Due to higher occupancies and commencement of new leases.
- A decline of 7.4% in NPI y-o-y due to the conversion of Gul LogisCentre from a master-lease to multi-tenancy property.
Distributable income of S$13.4m was 10.3% lower q-o-q.
- Lack of a one-off distribution of S$2.3m divestment gain from Jinshan in 4Q19.
- Excluding the one-off divestment gain, distribution income would have been 5% higher q-o-q.
- Capital distribution for 1Q20 was retained to provide for potential cash flow needs in the near future; S$0.5m of capital distribution in 4Q19.
ARA LOGOS Logistics Trust's DPU of 0.997 Scts for 1Q20 after the retention of income for potential rental deferments/waivers in the coming quarters.
- DPU was 28% lower q-o-q; 20% of distributable income was retained in 1Q20. Without this retention of income and the effect of the divestment gains for 4Q19, underlying DPU would have increased c.10% q-o-q.
Property tax rebates for its Singapore assets of S$2.2m will be fully passed on to tenants. So far, a significant number of tenants in Singapore (up to 40%) have come forward to enquire about rental deferments. ARA LOGOS Logistics Trust will assess these enquires on a case-by-case basis and only consider the genuine requests.

Gearing inched up from 40.1% (4Q19) to 40.8% (1Q20) due to weaker AUD. NAV also declined from S$0.59 to S$0.56 due to weaker AUD.
Financing costs fell by 21bps to an improved 3.63% in 1Q20.
Interest coverage ratio was maintained at a healthy 3.7x.
No refinancing required for the rest of FY20; debt maturity of 3.8 years.

ARA LOGOS Logistics Trust's portfolio occupancy improved from 95.3% (4Q19) to 97.1% (1Q20).
- Mainly due to a 3.0% improvement in occupancy for Singapore portfolio to 97.2%
- Occupancy in Australia declined from 99.6% (4Q19) to 96.9% (1Q20)
More than 1.1m sqft of leases were secured in 1Q20; marginal negative rental reversion of 0.1%.
- 897,700 sqft of rent renewals, 218,100 of new leases.
Majority of leases due to expire in FY20 have been renewed, with only 8.1% (by gross rental income) of expiries remaining.
- Compared to the 20.6% of expiries reported in 4Q19.
Portfolio WALE remained relatively stable at 2.9 years.
Portfolio NPI yield improved 0.2% q-o-q to 7.2% for 1Q20.
- Mainly led by 0.3% improvement in the Singapore portfolio to 7.5%.
- NPI yield for Australia portfolio decreased by 0.4% q-o-q to 6.5% mainly due to higher valuations of Australian properties.

Despite the challenges ARA LOGOS Logistics Trust will face due to the COVID-19 outbreak, we believe that Management’s prudent approach will help it ride out the rest of FY20. The retention of 20% of distributable income and capital gains for the quarter will help smoothen its cash flow needs in the coming quarters even if requests for rent rebates and deferments increase.
We also like that ARA LOGOS Logistics Trust has been proactive in early renewals of leases due in FY20, thus securing decent rental rates with only a marginal 0.1% negative reversion. With the leasing market expected to face more pressure in the coming quarters, ARA LOGOS Logistics Trust has only a small portion of leases (8.1%) left to be renewed, and the impact of any rental rate declines will be well managed.
See ARA LOGOS Logistics Trust Share Price; ARA LOGOS Logistics Trust Target Price; ARA LOGOS Logistics Trust Analyst Reports; ARA LOGOS Logistics Trust Dividend History; ARA LOGOS Logistics Trust Announcements; ARA LOGOS Logistics Trust Latest News.
Nonetheless, we have cut our earnings estimates to factor in:
1. potential weakness in rents and occupancies,
2. lower AUD exchange rate,
3. retention of capital distributions for FY20.
As such, we maintain our HOLD call on ARA LOGOS Logistics Trust with a lower Target Price of S$0.56.

Dale LAI DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-04-29

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.56 DOWN 0.75