Cache Logistics Trust (CACHE SP) - Maybank Kim Eng 2017-07-24: Re-balancing Act

CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust (CACHE SP) - Re-balancing Act

Cache Logistics Trust (CACHE) saw sequential improvements in revenue and NPI in 2Q17 from its sound portfolio reconstitution efforts YTD, as momentum from its Australian expansion helped mitigate weaker fundamentals at its Singapore core.
Looking ahead however, the near-term supply outlook for warehouses remains challenging, while a stretched balance sheet could constraint further inorganic growth upside.

We keep our forecasts, HOLD and DDM-based SGD0.95 Target Price unchanged, and prefer AREIT (AREIT SP, Rating: BUY, Target Price SGD 2.90) for its Singapore business parks exposure.

Cache achieved 2Q17 revenue of SGD27.9m (-0.7% YoY, +3.1% QoQ) and NPI of SGD21.7m (-4.0% YoY, +4.2% QoQ). The performance was driven by contributions from the DHL Supply Chain ARC and a full-quarter from the Laverton North Spotlight warehouse in Australia (acquired in Mar 2017).
These helped offset lower revenue from 51 Alps Ave and the Changi Districentre 3 (divested in Jan 2017). Portfolio occupancy improved QoQ to 98.3% (from 97.2%), while DPU stayed at S1.80cts (-9.5% YoY).
Following a SGD0.12m distribution in 2Q17, Cache would have SGD1.17m in residual sales proceeds from its Kim Heng warehouse divestment.

Aggregate leverage rose QoQ to 43.4% with all-in financing cost at 3.46%, (versus 3.55% in 2Q16), following refinancing initiatives in Nov 2016, and with no refinancing needs till 2018.
We see limited financing/currency risks, with hedging of 70%/50% of its SGD/AUD onshore loans into fixed rates, and 94.3% of distributable income hedged or derived in SGD.
Management remains sanguine towards acquisition growth opportunities (in Brisbane, Melbourne) but given limited debt headroom, will likely need to intensify its portfolio rebalancing efforts.

Cache has not provided new updates on its 51 Alps Ave asset, and as a result our forecasts are unchanged.
Within the sub-sectors, we continue to see a more challenging outlook for warehouses, as new 2017 supply adds 9.7% to total stock versus 4.4% for factories and 0.2% for business parks.
Remain HOLD and SGD0.95 TP.

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 | http://www.maybank-ke.com.sg/ 2017-07-24

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 0.950 Same 0.950