ARA LOGOS Logistics Trust has emerged relatively unscathed from the Covid-19 outbreak and subsequent lockdown measures, as strong demand for logistics assets pushes up Singapore occupancy, note analysts after the release of the company’s 1H2020 results on Jul 28.
Present in Singapore and Australia, ARA LOGOS Logistics Trust (ALLT) is a REIT whose investment mandate is to invest primarily in logistics properties located in the Asia-Pacific region. Previously known as Cache Logistics Trust, the transfer of ARA Asset Management’s entire stake in the REIT manager and 10.3% shareholding to LOGOS on Apr 28 saw the REIT renamed to ARA LOGOS Logistics Trust. While ALOG continues to be the majority shareholder, LOGOS serves as the REIT’s exclusive logistics real estate platform with $9.4 billion-worth of assets under its management as of Dec 2019.
While the company’s 1HFY20 revenue declined 1.4% y-o-y to $57.8 million and NPI fell 0.7% y-o-y to $43.9 million, CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee say there has been “minimal impact from Covid-19 so far” on the company, with an improving outlook on lower supply and increasing demand.
Eing and Lock cite transitory downtime between leases at ALOG Cold Centre and Pandan Logistics Hub, rental waivers for qualifying SME tenants and a weaker AUD vs SGD, which was partially offset by higher revenue at ALOG Commodity Hub with the commencement of new leases in 2Q2020 and additional rental contribution from a property in Australia acquired in Apr 2019 as reasons for the decline. CGS-CIMB is maintaining “add” on the company with an unchanged target price of 71.3 cents.
To DBS Group Research analysts Dale Lai and Derek Tan, the “stockpiling of businesses and the proliferation of e-commerce” is a bright spark for the company amid the Covid-19 pandemic. The company reported a 33.0% q-o-q increase in DPU (distribution per unit) to 1.326 cents in 2Q2020, outperforming the rest of its peers. DBS is maintaining “buy” with a target price of 70 cents.
“ALLT’s Singapore portfolio occupancy in 2Q2020 increased by 1.4 percentage points to 98.6%, and it was partly due to increased demand from third-party logistics players and businesses looking to stockpile,” says DBS. “Going forward, a stronger-than-anticipated expansion by these tenants would mitigate potential weaknesses in other sub-sectors and boost ALLT’s earnings.”
Maybank analyst Chua Su Tye says the company’s Australia assets lift DPU visibility. Revenue from Australia rose 2.0% y-o-y, with the added rental contribution from 182-198 Maidstone Street in Altona, Victoria that was acquired in Apr 2019, as committed occupancy fell q-o-q from 96.9% to 94.7%. Maybank is recommending “buy” on the company with a 12-month target price of 80 cents.
“Supply remains tight with demand fundamentals (from e-commerce, essential goods, pharmaceutical supplies, and medical equipment) sound, which should support both occupancies and rents. Australia’s 3.0-year WALE supports its 2.8-year portfolio WALE and improves DPU visibility,” says Chua.
The company is also welcoming new leadership next month. Karen Lee will be appointed new CEO effective 15 Aug 2020 following the retirement of Daniel Cerf. Lee will relinquish her present post as head of Asset & Investment Management of LOGOS SE Asia Pte Ltd. “With a new CEO in place, and a stronger sponsor (LOGOS) with a growing US$7.0 billion AUM [assets under management] pipeline in China, India, Southeast Asia, and Australia & New Zealand, we see upside to its capital recycling efforts,” says Chua.
In addition, the entry of LOGOS as a sponsor has greatly increased ARA LOGOS Logistics Trust’s acquisition scope and potential, says RHB analyst Vijay Natarajan. RHB is maintaining “buy” with a target price of 72 cents.
“We believe some of LOGOS’ Australian assets (Total AUM: approximately US$3 billion) could be key a near-term acquisition target for as it already has an established market presence and fits well with management’s objective of adding freehold assets. With gearing at 40.4%, any potential acquisition is likely to be a combination of equity and debt.”
Natarajan also notes that in 2Q2020, management released $0.5 million of the $2.5 million income retained in 1Q2020, noting that it sees $2 million as a sufficient buffer for potential tenant relief.
“About 38% of SG tenants are SMEs but ALLT is awaiting clarity on exact number of tenants that qualify for mandatory one-month relief. In Australia, only two tenants qualify under the government code of conduct for rent relief.”
As at 11.41am, units in ARA LOGOS Logistics Trust are trading at 1 cent higher, or 1.57% up, at 64.5 cents.
