Cache Logistics Trust - Phillip Securities 2017-07-24: Rebalancing Strategy Paying Off

Cache Logistics Trust - Phillip Securities 2017-07-24: Rebalancing Strategy Paying Off CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust - Rebalancing Strategy Paying Off

  • 2Q17 gross revenue exceeded our forecast by 3.9%.
  • 2Q17 DPU from operations exceeded our forecast by 9.0%.
  • QoQ improvement in both underlying distributable income and DPU from operations.
  • Adjusted our FY17e/FY18e DPU forecasts higher by 5.1%/3.9%.

The positives 

  • QoQ higher occupancy from 97.2% to 98.3%: This was as a result of new leases at Cache Cold Centre, Cache Changi Districentre 1 and DSC ARC.
  • Unchanged QoQ DPU of 1.80 cents: Achieved through top-ups of capital distribution (2Q17/1Q17: 0.013/0.103 cents) from Kim Heng Warehouse (divested in June 2015 for S$9.7 million). S$8.53 million in capital distribution have been paid out since 2Q15. Excluding the effect of the top-ups, underlying DPU from operations actually grew 5.3% QoQ.
  • Minimal leasing risk for the remainder of 2017: Only 1.8% of NLA expiring in 2H 2017.

The negatives 

  • Negative rent reversions during the quarter: Passing rent is -8% to -10% YoY, and there was an outlier renewal done at -20% reversion.
  • Aggregate leverage at 43.4% remains just shy of the statutory 45% limit: The Manager is adopting a portfolio rebalancing strategy to manage the aggregate leverage. However, we view an equity fund raising or utilising alternative sources of funds (such as perpetual securities) as having a more meaningful effect.
  • 51 Alps Avenue rental dispute unresolved: Legal proceedings is taking longer than expected. The Manager is committed to vigorously defending the interest of unitholders.


  • The outlook is stable to negative. Rebalancing strategy of diversifying into Australia is paying off, with QoQ higher underlying distributable income and DPU from operations.
  • Oversupply persists in Singapore, with likely overhang into 2018. Key risk is expiry of the CWT Commodity Hub master lease in April 2018 (13% of NLA). However, leases with some of the underlying tenants have already been secured, should the master lease not be renewed.

Upgrade to Neutral; higher target price of $0.86 (previously $0.75) 

  • We raised our FY17e/FY18e DPU forecast by 5.1%/3.9% as we revisit our assumptions. Our target price represents an implied FY17e forward P/NAV multiple of 1.12x, which compares against the FTSE REIT Index forward 12-months P/NAV multiple of 1.05x.
  • We also bumped up our terminal growth assumption to -0.5% from -1.5% on signs of the rebalancing strategy paying off. Successful execution of lowering aggregate leverage would lead us to raise our terminal growth assumption further.

Relative valuation 

  • Cache Logistics Trust is over-valued relative to logistics peers in terms of P/NAV multiple.

Richard Leow cFTE Phillip Securities | http://www.poems.com.sg/ 2017-07-24
Phillip Securities SGX Stock Analyst Report REDUCE Maintain REDUCE 0.750 Same 0.750