ARA LOGOS Logistics Trust - CGS-CIMB Research 2020-07-28: Improving Outlook

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ARA LOGOS LOGISTICS TRUST (SGX:K2LU)

ARA LOGOS Logistics Trust - Improving Outlook

• ARA LOGOS Logistics Trust's 1HFY20 DPU was in line at 49% of our FY20F. COVID-19 has had minimal on ALOG so far.
• We believe the outlook is improving on lower supply and increasing demand. LOGOS partnership could present acquisition opportunities.
• Reiterate ADD.

ARA LOGOS Logistics Trust's 1HFY20 DPU came in line

• ARA LOGOS Logistics Trust (SGX:K2LU)’s 1HFY20 revenue declined 1.4% y-o-y to S$57.8m while NPI fell 0.7% y-o-y to S$43.9m. The y-o-y decline was mainly due to
  1. transitory downtime between leases at ALOG Cold Centre and Pandan Logistics Hub,
  2. rental waivers for qualifying SME tenants and
  3. a weaker A$ vs S$
• which was partially offset by higher revenue at ALOG Commodity Hub with the commencement of new leases in 2Q20 and additional rental contribution from a property in Australia acquired in Apr 2019.
• ARA LOGOS Logistics Trust's 1HFY20 DPU of 2.323 Scts (-18% y-o-y) was in line at 49% of our FY20F. Excluding capital, one-off distribution and retained income, 1HFY20 DPU rose 1.8% y-o-y to 2.506 Scts.

Minimal impact from COVID-19 so far

• In 2Q20, ARA LOGOS Logistics Trust released S$0.5m of the S$2.5m retained in 1Q20. Management maintained its view that the retained S$2m income is sufficient, based on the current situation. We understand that there are only a handful of SMEs who have qualified for the mandated rental waiver. Rental collection rate remained high at 94%.

Tapering supply and increasing demand

• ARA LOGOS Logistics Trust’s portfolio occupancy remained high at 97% in 1H20 vs 97.1% in 1Q20. It secured 1.4m sq ft (of which 34% were new leases) in 1H20 vs 1.1m sq ft in 1Q20.
• Rental reversion was -0.5% mainly attributed to lease expansion for a tenant with lower signing rent secured vs. the preceding lease secured before the strong supply in the industry. Only 5.2% lease expiries by GRI remain for FY20 and there are 32.8% leases to be renewed in FY21.
• Lease of DB Schenker which is ARA LOGOS Logistics Trust’s third largest tenant by GRI (6% in 1HFY20) is one of the leases expiring in 2021. The REIT is still in negotiations with the tenant. Management believes the expiring leases could be renewed at least at market rent which has been bottoming out since 2Q2019, supported by lower supply and stable demand.
• Being purely in the warehouse/logistics real estate space, ARA LOGOS Logistics Trust is not concerned about vacancies given the increasing demand from e-commerce.

Ample growth opportunities from the partnership with LOGOS

• On the acquisition front, while Australia and Singapore remain as the main focus regions for ARA LOGOS Logistics Trust given its existing presence in these countries, Korea and China would also be near-term target markets. The partnership with LOGOS which has a large pipeline should enable ARA LOGOS Logistics Trust to create more synergies and grow inorganically, in our view.
• 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.
• We maintain our FY20- 22 DPU forecasts and reiterate ADD at a DDM-based Target Price of S$0.71.
• Upside/downside risks include accretive acquisitions/weaker-than-expected rental reversion.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-28

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