ARA LOGOS Logistics Trust - OCBC Investment 2020-04-29: Rebranding Of Cache Logistics Trust

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ARA LOGOS LOGISTICS TRUST (SGX:K2LU)

ARA LOGOS Logistics Trust - Rebranding Of Cache Logistics Trust

• ARA LOGOS Logistics Trust's 1Q20 DPU fell 34.1% y-o-y.
• Cache Logistics Trust was renamed to ARA LOGOS Logistics Trust.
• Lower Fair Value estimate of S$0.53.

Lower DPU to conserve capital

• ARA LOGOS Logistics Trust (SGX:K2LU)’s (ALOG) (formally known as Cache Logistics Trust) 1Q20 gross revenue dropped 6.6% y-o-y to S$28.8m, largely due to
  1. transitory vacancy downtime between leases;
  2. conversion of Cache Gul LogisCentre from master lease to a multi-tenancy structure;
  3. lower signing rents for leases as compared to the previous leases;
  4. as well as a weaker Australian dollar.
• Lower gross revenue was partially offset by additional rental contribution from the warehouse in Altona, Australia which was acquired in Apr 2019. NPI fell 7.3% y-o-y to S$22.0m, on the back of lower gross revenue and higher expenses from the conversion of Cache Gul LogisCentre.
• In view of COVID-19 uncertainties, ARA LOGOS Logistics Trust retained S$2.5m or ~20% of total distributable income, factoring in potential rental deferment or waivers of tenants. As such, 1Q20 DPU declined 34.1% y-o-y to 0.997 S cents, making up 18% of our initial full-year forecast, which was below our expectations.

Portfolio occupancy remained strong but rental reversion was slightly negative

• As at 31 Mar 2020, ARA LOGOS Logistics Trust’s committed portfolio occupancy improved q-o-q from 95.3% in 4Q19 to 97.1% in 1Q20. Rental reversion in 1Q20 was -0.1%, as compared to 9.1% in 4Q19, underscoring weak leasing momentum amid economic headwinds from COVID-19.
• Looking ahead, 8.1%/33.0% of leases by GRI will be due for expiries in FY20 and FY21 respectively. As at 31 Mar 2020, ARA LOGOS Logistics Trust’s gearing stood at 40.8% which is on the higher end but no further refinancing is required until 2021.
• We understand that ~100% of ARA LOGOS Logistics Trust’s tenants are still operating during ‘Circuit Breaker’ and ~20 tenants in Singapore have asked for assistance (mostly from SMEs) and 40% of tenants in Australia will fall under the JobKeeper support program.
• Management will review the requests on a case by case basis and sees the 20% provisions as sufficient for now.

Rebranding to tap on collective expertise and resources

• CACHE announced the rebranding of Cache Logistics Trust to ARA LOGOS Logistics Trust, underscoring the commitment from ARA and LOGOS to create long-term sustainable value for ARA LOGOS Logistics Trust’s unitholders. We believe the rebranding exercise will enable ARA LOGOS Logistics Trust to leverage on LOGOS’ expansive network to bring more acquisition opportunities in the future.
• After adjustments (risk free rate: 1.55%, COE: 10.0%) and factoring in rental deferments/waivers, lower occupancy and rental reversions, our fair value estimate decreases from S$0.74 to S$0.53.
• 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.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2020-04-29

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.53 DOWN 0.74