1. Describe the ALOG’s recent financial performances.
ARA LOGOS Logistics Trust (ALOG) is a real estate investment trust that invests in income-producing real estate used for logistics purposes, as well as real estate related assets, in Asia Pacific. ALOG reported a stronger operating and bottom-line performance at our recent 1HFY2020 results. Some key highlights include:
- Y-oy basis: Gross revenue and net property income (NPI) rose 4.3% and 7.0% respectively in 2QFY2020 compared to 2QFY2019. This was underpinned by higher revenue as a result of strong leasing activity during the quarter. 2QFY2020 distributable income also increased 1.3% to $14.5 million from $14.3 million in 2QFY2019. On a like-for-like basis, excluding capital and one-off distributions, 2QFY20’s distributable income was up 25.0% from 2QFY2019.
- Q-o-q basis: 2QFY2020 gross revenue was 0.8% higher than 1QFY2019, mainly due to commencement of new leases. 2QFY2020 NPI was, however, 0.6% marginally lower due to higher property expenses. Distributable income increased 33.3% to S$14.5 million from $10.9 million in 1QFY2020. On a like-for-like basis, excluding capital and one-off distributions, 2QFY2020’s distributable income rose 4.6%.
As at June 30, ALOG's portfolio comprises 27 high quality logistics warehouse properties strategically located in established logistics clusters in Singapore and Australia. The portfolio has a total gross floor area of 9 million sq ft t valued at $1.26 billion.
2. In March, ARA Asset Management completed its acquisition of a majority stake in LOGOS Group. How has this acquisition benefited the REIT?
After the acquisition, LOGOS, a leading logistics developer and real estate specialist in Asia Pacific, now operates as ARA’s exclusive logistics real estate platform and the Sponsor of ALOG. Through this partnership, ALOG will be able to leverage the combined complementary strengths of ARA and LOGOS, with key benefits including:
- expansion opportunities and enlarged footprint; enlarged network in key and new high-growth markets;
- enhanced complementary capabilities and resources; extensive development expertise; and
- increased attractiveness to a larger pool of institutional investors.
The rebranding of Cache Logistics Trust to ARA LOGOS Logistics Trust in April also demonstrated the strong commitment from ARA and LOGOS to grow ALOG and alignment of interests with our Unitholders. Hence, we believe that ALOG is well-positioned for a transformative growth chapter ahead.
3. Describe the REIT’s portfolio tenant mix. What would you maintain or change in terms of this mix?
ALOG’s diversified and high-quality tenant base spans across various industry/trade sectors. Our diverse customer base and the resilient logistics sector underpin ALOG’s cash flows and stable operational performance. Our tenants comprise largely of third-party logistics providers (3PLs) which have benefited from the Covid-19 pandemic, driven by factors such growth in e-commerce business and nation-wide stockpiling. This further demonstrates the resilience and defensiveness of ALOG’s portfolio in the logistics sector.
Over the years, we have established deep tenant relationships which have supported our strong retention rate. We have a track record of maintaining a high occupancy rate of 97% committed portfolio occupancy as of June 30, even amid soft market conditions. Attracting and retaining high-quality tenants remains a key focus for the REIT and we will continue to enhance the diversification of our tenant base to mitigate concentration risk from any single tenant.
4. Close to 33% of ALOG’s lease profiles are expiring in FY2021. What is the progress on renewal or new lease acquisition?
We believe that the logistics sector is underpinned by strong market fundamentals, such as e-commerce growth and the distinct shifts in global supply chain management. As such, we are continuing to see high demand from existing and prospective tenants for quality logistics space across our portfolio.
We have commenced negotiations for renewal and new leases with existing and potential tenants ahead of lease expiries in 2020/2021. We believe that our strong track record of maintaining high occupancy rates in any market condition is a testament to the quality and competitiveness of our portfolio.
5. What is the outlook for the industrial and logistics property segments in both the Singapore and Australian markets?
Singapore: There has been healthy demand for warehouse space in 2Q2020, driven by renewals, boost in e-commerce activities and increased stockpiling requirements. Short-term leasing requirements to accommodate medical supplies, food and consumer items from e-retailers also increased due to safety concerns and movement controls. Warehouse supply has stabilised and rents are expected to remain flat from mid- to end-2021. According to Savills Research, rents for logistics and warehouse properties are expected to see a lower y-o-y decline of 5.0% this year and the warehouse segments continue to be supported by higher demand for logistics and storage needs.
Australia: Demand for logistics warehouses continues to be supported by higher domestic demand, e-commerce boom as well as a limited supply of quality warehouse space, particularly in key locations in the Eastern Seaboard major cities. Industrial properties are expected to be relatively resilient and long-term growth drivers with continued expansion in e-commerce and infrastructure investment. We continue to see new enquiries for our portfolio of well-located and good-quality assets, particularly from large-scale end-users pursuing a flight to quality and better location.
6. How will ARA LOGOS Logistics Trust manage its debt profile and ensure the sustainability of its distributions?
ALOG adopts a disciplined and prudent approach in our debt and capital management. As at June 30, ALOG has a well-balanced debt maturity profile with a weighted average debt maturity of 3.5 years. There are also no refinancing requirements till December 2021.
We believe that our balance sheet remains resilient and well-positioned to meet any financial obligations as and when they fall due. We will continue to proactively manage our portfolio and capital structure to safeguard the long-term sustainability of unitholders’ interests.
7. How has Covid-19 affected your operating conditions? What measures have you put in place to mitigate the impact?
ALOG’s tenant profile is strongly weighted towards 3PLs, which have largely benefited from the Covid-19 pandemic. All ALOG tenants have remained operational throughout Covid-19 and continue to remain resilient, with a high rental collection rate across the portfolio in 1HFY2020.
As part of the Singapore Government’s Resilience Budget, we passed on property tax rebates of $2.2 million to our tenants in Singapore. We will also be granting rental reliefs to qualifying SMEs in
accordance with the government’s Covid-19 (Temporary Measures) (Rental and Related Measures) Regulations 2020 and Australian Government’s Code of Conduct to support our tenants. After prudent consideration, ALOG has retained $2.5 million of 1QFY2020 distributable income for capital conservation to address potential rental deferment and/or waivers required to support tenants. In the recent 2Q/1HFY2020 results, we released $0.5 million out of the $2.5 million as part of 2QFY2020’s distribution to unitholders. We will continue to review the release of the retained distribution income, while remaining mindful of the current conditions, to balance between distribution to unitholders and cash flow provisioning.
At the property level, we continue to employ measures to keep our employees, tenants and visitors safe and provide the necessary support in a targeted manner during this period.
8. ARA LOGOS Logistics Trust is focused on Singapore and Australia. Are there any plans to diversify into other markets?
ALOG has an Asia-Pacific investment mandate. Together with our sponsor, LOGOS, we will continue to adopt a disciplined and proactive approach when sourcing for opportunities to grow ALOG and
enhance total returns for our unitholders.
LOGOS has a strong regional presence and a successful track record in scaling up its development of modern logistics warehouse assets within the region. This presents ALOG with opportunities to diversify into new growth markets and a pipeline of potential acquisitions.
9. What are some of ALOG’s key ESG initiatives?
By integrating ALOG’s business strategies and operations with effective sustainability practices and policies, we aim to achieve sustainable economic growth and long-term value for our unitholders. Reduction of environmental impact remains a key priority for us. This year, we have been awarded Frost &Sullivan’s “2020 Singapore Corporate Renewable Energy Company of the Year” under their annual Best Practices Awards. This follows the successful completion of the joint solar farm project with Sembcorp Industries atop three of ALOG’s warehouses (ALOG Commodity Hub, Pandan Logistics Hub and ALOG Changi DistriCentre 1).
The award is testament to our ongoing sustainability efforts and we will continue to partner with our sponsor to pursue similar initiatives to achieve long-
term sustainable growth for ALOG’s unitholders.
10. What is ALOG’s value proposition to its shareholders and potential investors?
We believe that ALOG presents investors with an attractive opportunity to participate in the resilient and growing logistics market. ALOG has a defensive portfolio and is well-positioned to ride on growth opportunities such as the expanding e-commerce market and the distinct shifts in global supply chain management resulting from the pandemic conditions.
In addition, the combination of ARA and LOGOS provides ALOG with synergistic opportunities. We are able to access ARA and LOGOS’ strong Asia-Pacific network, LOGOS’ integrated platform capabilities, its extensive network of tenants and capital partners as well as pipeline opportunities of quality assets for the long-term growth of ALOG.
Candace Li is a research analyst with Singapore Exchange.
