Cache Logistics Trust (CACHE SP) - Maybank Kim Eng 2017-04-18: Still Some Way to Go

Cache Logistics Trust (CACHE SP) - Maybank Kim Eng 2017-04-18: Still Some Way to Go CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust (CACHE SP) - Still Some Way to Go

Initiate at HOLD, TP SGD0.95 

  • Cache is a direct play into Singapore’s global hub ambitions, given its well-entrenched logistics portfolio, while an expansion into Australia in 2015 has diversified growth engines. 
  • Supply pressures in the Singapore warehousing market are intense and should drive near-term risks, while further inorganic growth opportunities could be constrained by a stretched balance sheet. 
  • Valuations should be supported by 8% yield, but the unresolved rent dispute at 51 Alps Avenue could remain an overhang.

Australian assets to cushion 

  • Singapore headwinds Cache’s 19 high-quality assets command a WALE of 4.0 years, with minimal expiries in 2017 (4.5% by NLA and 3.9% by gross rental income).
  • An expansion into Australia in 2015 with the acquisition of six third-party logistics properties should help mitigate oversupply headwinds in the Singapore warehouse leasing market, while we see rising contribution from its SGD147.2m build-to-suit (BTS) for DHL’s Supply Chain Advanced Regional Centre to help support DPU growth.

Stretched balance sheet limits further acquisitions 

  • Cache has been proactive in portfolio and capital management, with 63% of interest cost hedged and minimal refinancing due in FY17. 
  • However, in spite of asset divestments (Kin Heng Warehouse, Changi Districentre 3 completed in Jan 2017), balance sheet remains stretched with gearing at 41.9%. This, coupled with 2016 devaluation losses on its Singapore assets, adds constraints to further near term inorganic growth initiatives.

Overhang may clear once Schenker dispute resolved 

  • A holding arrangement remains in place at 51 Alps Avenue, where the ongoing rent dispute between master-tenant C&P and sub-tenant Schenker dating from May 2016 is still unresolved. 
  • Cache’s downside is protected, with legal recourse to damages of double rent payable from C&P for the duration that Schenker stays. Management remains optimistic on tenant retention given the asset (purpose-built with fresh capital sunk in) is in a free trade zone and a scarcity of alternatives at the Airport Logistics Park.

Swing Factors


  • Earlier-than-expected pick-up in leasing demand driving improvement in occupancy.
  • Better-than-anticipated rental reversion trend.
  • Accretive acquisitions.


  • Prolonged slowdown in economic activity could reduce demand for industrial space, resulting in lower occupancy and rental rates.
  • Termination of long-term leases contributing to weaker portfolio tenant retention rate.
  • Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.

Chua Su Tye Maybank Kim Eng | 2017-04-18
Maybank Kim Eng SGX Stock Analyst Report HOLD Initiate HOLD 0.95 Up 0.94