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Monday, June 29, 2020

ARA LOGOS Logistics Trust (Previously Cache Logistics Trust) Analysis @ 29 June 2020

Basic Profile & Key Statistics
ARA LOGOS Logistics Trust (ALOG) previously known as Cache Logistics Trust, the renaming was announced on 28 April 2020. In 2018, CWT Limited (previous sponsor of Cache Logistics Trust) sold all its stake to manager, ARA. In 2019, ARA announced that it would sell 10% stake to LOGOS Property. In 2020 March, ARA announced completion on its acquisition of a majority stake in LOGOS Group. 
ALOG has adopted half-yearly reporting of financial statement but would provide quarter business update. However, ALOG is maintaining its quarter distribution policy. ALOG is considered a small cap REIT with market cap of S$ 0.61 billions. 

Lease Profile
Occupancy rate is high at 97.1%, however WALE is quite short for logistics sector. Although more number of properties are situated in Australia, majority income is still come from Singapore properties. As majority income is from Singapore properties, short weighted average land lease expiry is expected. Highest lease expiry fall in the FY2021 at 33% of GRI, this post a slight concentrated lease expiry risk.

Debt Profile
Gearing Ratio is quite high, it is currently no.4 highest among SREITs. Cost of debt is high, this is expected as its unsecured debt is high. Fixed rate debt and interest cover ratio are lower than SREITs median. WADE is considered quite long at 3.8 years. However, 44% of its debt is matured at 2024 which post a concentrated debt maturity risk. Should refinance is not granted by issuers at that point of time, then things would go ugly.

Diversification Profile
ALOG has been acquiring properties in Australia since 2015, where it slowly improve its geographical diversification. However, ALOG is still not diversified enough in geographical, properties and tenants as compare to SREITs median.

Key Financial Metrics
Property yield and distribution on capital are higher than median. Management Fees is in median range, which unitholder receive $7.5 for every dollar of management fee being paid. Distribution margin is slightly lower than median. Rental support come from vendor in relation to acquisition of the property in Altona, VIC, AUST which was completed on 29 Apr 2019, which is amounted to A$ 1.67 mils and distribute equally over 2 years.

DPU & NAV Trend
Both DPU and NAV per unit have been dropping and no sign of recovery is seen. Now after all dusts have settled, hopefully management team can improve on its performance. It would be very challenging, moreover with current COVID situation.

Fundamental Valuation
Plus Points: Negative Points:
Occupancy WALE
Unsecured Debt Weighted Average Land Lease Expiry
WADE Gearing
Distribution on Capital Cost of Debt
  Top Geographical
  Top Property
  Top Tenant
  Top 10 Tenants
  Interest Cover
  Dropping NAV trend
  Dropping DPU trend

From the above table, it is obvious that it is managed poorly. It would require great deal of effort and time to turn around with current fundamental. From my analysis, I come to an intrinsic value of  $ 0.495 for ALOG.

Relative Valuation
i) Average Dividend Yield
Average value at 8.16%, apply past 4 quarters' DPU of 5.007 cents will get S$ 0.61. However, if we consider DPU without retention due to COVID situation, DPU would be 5.236 cents, which translate into S$ 0.64.    
ii) Average Price/NAV 
Average value is at 1.09, apply latest NAV of $0.56 will get S$ 0.61

Author's Opinion
At this moment, it is still early to tell whether management would be able to turn things around. Hopefully things would get better from here. Let's sum out the valuation:
i) Fundamental Intrinsic Value = S$ 0.495
ii) Relative Valuation - Dividend Yield = S$ 0.64
iii) Relative Valuation - Price/NAV = S$ 0.61
At current price of $0.555, it is consider overvalue in term of fundamental. However, it is still slightly low price in term of relative valuation. 

*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee the accuracy, completeness and reliability. It should not be taken as financial advise or statement of fact. I shall not be held liable for errors, omissions as well as loss or damage as a result of use of material in this blog. Please always do you own due diligence before any decision is made.

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