Cache Logistics Trust (CACHE SP) - Maybank Kim Eng 2018-01-19: An Improved Equilibrium

CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust (CACHE SP) - An Improved Equilibrium

We raised FY18/19 DPU estimates by 6-9% following Cache Logistics Trust’s better-than-expected 4Q/FY17 results. While NPI was in line, DPUs were lifted from lower interest costs as borrowings were repaid from its Oct 2017 SGD102.7m rights issuance.
We raised DDM-based Target Price 6% to SGD0.90 (WACC: 8.0%, LTG: 1.5%), and believe its improved balance sheet - helped by the Hi-Speed Logistics Centre divestment – could lend support to further deals.
With a sector recovery in sight, we however prefer Ascendas REIT (AREIT SP; Rating: BUY; Target Price: SGD3.00; see report: Ascendas REIT - Another Steady Quarter) and Mapletree Industrial Trust (MINT SP, Rating: BUY, Target Price: SGD2.10; see report: Mapletree Industrial Trust - Speeding Up Its Data Plan) for their Singapore business parks/ hi-specs exposure.
Maintain HOLD.

Cache Logistics Trust’s 4Q17 performance, with revenue and NPI up 7.8% y-o-y and 10.2% y-o-y, respectively, was largely supported by a rental top-up in relation to 51 Alps Ave, following a resolution of its lease dispute reported on 31 Oct 2017.
DPU rose 3.6% y-o-y to S1.60cts, given the enlarged units base from its SGD102.7m (18-for-100) rights issuance.
Portfolio occupancy fell marginally q-o-q to 96.6%, while rental reversion was -3.7% in 4Q, and - 6.7% for FY17, according to management.
There was no capital distribution, as management said sales proceeds from its Kim Heng warehouse divestment had been fully exhausted.

Aggregate leverage rose q-o-q to 36.3%, but fell y-o-y from 43.1%, as the bulk of its rights issuance were used to repay borrowings. As a result interest costs fell 12.1% y-o-y/ 5.5% q-o-q, while financing costs were stable at 3.56%.
Cache Logistics Trust’s debt headroom has increased to 193.4m (at the 45% gearing threshold) as at end-Dec 2017. Its balance sheet should be further strengthened by SGD73.8m in sales proceeds from the proposed divestment of its Hi-Speed Logistics Centre (74% occupied) at 7% above valuation. Management continues to eye acquisition growth opportunities from Australian third-party assets - with longer land leases, higher yields.

We revised our estimates to factor in the proposed divestment and lower borrowing costs.
While we cut NPIs by 1-2%, our DPUs rise 6-9%. We believe Cache Logistics Trust is fairly valued at a DPU yield of 7.0% (FY18E), 1SD below its historical mean, and see more compelling value in Ascendas REIT and Mapletree Industrial Trust, for their stronger balance sheets and assets geared to a sector recovery.

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/ 2018-01-19

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 0.90 Up 0.850