ARA LOGOS Logistics Trust - RHB Invest 2020-04-29: A Decent Quarter, But Challenges Ahead; Keep BUY


ARA LOGOS Logistics Trust - A Decent Quarter, But Challenges Ahead; Keep BUY

  • BUY, with a new SGD0.64 Target Price from SGD0.74, 23% upside and 9% yield.
  • ARA LOGOS Logistics Trust (SGX:K2LU) posted decent 1Q numbers, but near-term challenges are expected in light of a worsening COVID-19. The entry of Logos Group should help in terms of operational experience and growth pipeline. ARA LOGOS Logistics Trust’s high trading yields also offer downside support.

1Q adjusted DPU fell 14% y-o-y (+10% q-o-q).

  • ARA LOGOS Logistics Trust's 1Q gross revenue and NPI declined 6.6% and 7.3% y-o-y on lower rent signed, conversions of master leases, transitional vacancy, and FX impact.
  • ARA LOGOS Logistics Trust has retained c.20% of distributable income (SGD2.5m) for the quarter and no income top-ups were made in light of uncertainties ahead due to COVID-19. Consequently, actual 1Q DPU declined 34.1% y-o-y to SGD0.01.

Occupancy improved, but challenging conditions ahead.

  • ARA LOGOS Logistics Trust's 1Q20 portfolio occupancy improved 1.8ppts to 97.1%, with 1.1m sq ft of leases signed during the quarter – indicating healthy logistics demand before COVID-19. We understand that demand was broad-based. Rental reversions were also flattish – an improvement vs past quarters.

Efforts to mitigate COVID-19’s impact.

  • There are no COVID-19-led tenant defaults yet, but c.20 Singapore tenants have requested for some form of assistance. Aside from passing the 30% property tax rebate, ARA LOGOS Logistics Trust is now looking at other ways to assist, eg lease restructuring and some rental/cash flow assistance for specific tenants.
  • In Australia, c.40% of tenants fall under the small & medium enterprise initiative ( < AUD 50m annual turnover), where a landlord has to implement a rental payment programme based on the reduction in a tenant’s COVID-19-impacted trade. However, only a portion are expected to be impacted, based on management’s latest assessment.
  • ARA LOGOS Logistics Trust also carries security deposits of 4.1 months, which can be used to mitigate the DPU impact, if needed.

Gearing on the high side, but no refinancing concerns.

  • As at 1Q20, gearing stood at 40.8%. Borrowing costs declined 20bps q-o-q to 3.63%, with the drawdown of AUD155m in loans and interest cover remaining healthy at 4x. No further refinancing is required until 2021. ALLT also hedged 92.5% of its distributable income to mitigate FX risks.

New name - ARA LOGOS Logistics.

Earnings and DDM changes.

  • We have lowered our FY20F-22F DPUs by 14%, 8%, and 8%, factoring in rent relief and lower rent growth. Our cost of equity assumption is also raised by 80bps to 9%.

Vijay Natarajan RHB Securities Research | 2020-04-29
SGX Stock Analyst Report BUY MAINTAIN BUY 0.64 DOWN 0.74