Aberdeen Standard European Logistics Income (ASLI) has committed to its quarterly dividend but has put the payment level under review.
The company, which owns 14 logistics asset across Europe, said it would continue to monitor rent collection closely, the evolution of covid-19 and its impact on its tenants.
As at 24 April 2020, the company had received 67% of rents due from tenants in respect of the second quarter payment date. The investment manager is in discussions with tenants that have yet to pay to assess where genuine challenges exist which may be alleviated by alternative rent solutions. These include short-term deferral of payments into H2 2020 and lease extensions in combination with short rent free periods rather than rent reductions. Following the conclusion of the rent deferral discussions, the level of payments in respect of Q2 is currently expected to materially increase as tenants fulfil their payment obligations, the group said.
A significant proportion of ASLI’s 35 tenants are involved in the food, pharmaceuticals and delivery business, which has continued to see high demand for their goods and services through this crisis.
“While a number of our tenants are experiencing short term operational and financial challenges, a good proportion of our tenants are experiencing greatly increased levels of trading as demand for home delivery and essential logistics services in general have risen sharply,” said Evert Castelein, ASLI’s manager.
“In addition, three of our top four tenants by income operate in the food and pharmaceutical logistics sectors and they are experiencing unprecedented levels of trading volume.
“While the covid-19 pandemic creates significant short-term market disruption, the forced lockdown and likely reduced social mobility for the foreseeable future will inevitably lead to an accelerated take up of e-commerce in European countries. Through a combination of a defensively positioned tenant base and a diversified portfolio of high quality, medium sized logistics properties located in key European locations, I believe we are well positioned to withstand this short-term market disruption.“
The company’s loan-to-value as at 31 March 2020 is around 35%, with an overall average fixed interest rate of 1.36%. Across the company’s six debt facilities, the weighted average debt maturity is 6.5 years, with the first refinancing date occurring in 2025. The company maintains significant headroom on both its interest coverage and loan-to-value debt covenants. Interest coverage covenants range from 250% to 300% and rental income would therefore have to fall by 69% on average before a breach of covenant would occur. Loan-to-value covenants range from 45% to 65% and asset valuations would have to fall by 21% on average before a soft covenant breach would occur and 31% on average before breaching a hard covenant.
[The underlying fundamentals of the logistics sector are strong, and especially so in Europe. Demand is being driven by an increase in online retailing and supply of modern, high-quality logistics buildings is scarce. The upshot in the long-term is significant rental growth. This has played out in the UK market over the past five years where ecommerce penetration rates have grown to be one of the highest in the world. Most European markets are on a similar growth trajectory to that witnessed in the UK. Countries such as France and the Netherlands are expected to see a spike in demand from ecommerce-related companies, while markets like Spain, Italy and Poland are much further behind in online retail sales penetration.
The covid-19 pandemic has increased the risk of tenant default in the short-term, while also seeing a spike in demand from some business sectors such as food retailers, ecommerce and pharmaceutical. Longer-term, the pandemic is likely to result in an acceleration in the pace of growth in ecommerce sales in the less mature markets, leading to increased demand in logistics property to support these businesses. One of the major impacts of the pandemic has been a shift in the purchasing habits of existing and new demographic groups to online shopping as all but essential retail outlets have been lockdown in most European countries. The increase in demand will be particularly prevalent in urban logistics, as retailers look to be located as close to the end customer as possible.
QuotedData published an article on the attractiveness of European logistics sector last week. To read it click here. We also published a research note on the industrial and logistics sector that you may find interesting. Click here to read it]
ASLI : ASLI commits to quarterly dividend