Cache Logistics Trust - CIMB Research 2018-01-19: 4Q17 Awaiting Catalysts

CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust - 4Q17 Awaiting Catalysts

Cache Logistics Trust's FY17 DPU of 6.583 Scts (-10.9% y-o-y) was below consensus and our expectation, at 90% of our full-year estimate. 4Q17 DPU of 1.597 Scts (-9.8% y-o-y) was at 22%.
The negative variation stemmed from a larger unit base from its rights issue (vs. our calculations) and that we assumed the top-up of S$3.8m would be fully disbursed.
Nonetheless, from a q-o-q perspective, 4Q17 showed initial signs of stabilisation.
We await catalysts in the form of better clarity over the renewal of CWT Commodity Hub (master lease expires in Apr 2018) as well as potential Australian acquisitions.

4Q17 DPU missed our expectation due to a larger unit base from its rights issues (vs. our calculation) and that we assumed the S$3.8m rental top-up in respect of 51 Alps Ave would be fully disbursed in 4Q. Excluding the impact of the rights issue, 4Q17 DPU decline would have been 1.1% y-o-y.
Partial distribution of the rental top-up and higher contribution from its Australian portfolio offset the divestment of Changi Districentre 3 (DC 3) and lower contribution from Changi Districentre 2 (DC 2).

Nonetheless, from a q-o-q perspective, 4Q17 showed some initial signs of stabilisation for Cache Logistics Trust. Excluding the S$1.9m rental top-up, we calculate that 4Q17 DPU would have decreased 4.5% q-o-q when compared to 3Q17 DPU from operations.
Looking to the next few quarters, we expect the DPU decline to narrow y-o-y.

We note that Cache Logistics Trust recognised S$3m rental top-up for Sep 2016-Dec 2017 as well as S$0.8m costs recovery in 4Q17. However, pending clarification from the Inland Revenue Authority of Singapore (IRAS) over the tax treatment for S$1.9m, CACHE has retained this sum.
We expect tax transparency for this S$1.9m, and that Cache Logistics Trust would distribute this amount over the four quarters of FY18F.

Portfolio occupancy declined 0.7% q-o-q to 96.6% due mainly to a tenant vacating DC 2, leaving it half occupied. Excluding multi-tenanted building (MTB) conversions, rental reversion for 4Q17 was -3.7% (FY17: -6.7%).
19.3% of gross rental income (GRI) is up for renewal in FY18F. c.12% of GRI is attributable to underlying leases at CWT Commodity Hub (master lease expires in Apr 2018). We believe there could be some NPI margin pressure should the asset be converted into a MTB (efficiency loss, higher opex).

Cache Logistics Trust recorded fair value loss of S$31.8m on investment properties in 4Q17. While there was some revaluation gains from the Australian portfolio (cap rate firmed c.30bp yoy to 6.9%), its Singapore properties recorded devaluation losses as valuers inputted lower rentals (cap rates stable at 6.4%).

In line with its portfolio rebalancing strategy, Cache Logistics Trust has proposed the divestment of 40 Alps Ave for S$73.8m, 7% gain over the asset's latest valuation. It expects the divestment to be completed in 1Q18.
Proceeds would be used primarily to reduce debt. Post-divestment, the manager expects gearing to improve to 32.4% (4Q17: 36.3%), enabling Cache Logistics Trust to pursue debt-driven acquisitive growth.

We reduce our FY18F-19F DPU by 2.4-3.1% to reflect a higher unit base and the divestment of 40 Alps Ave. However, we raise our DDM-based Target Price on lower COE of 8.5% (previously 9.3%).
We maintain our HOLD rating on Cache Logistics Trust as we await catalysts in the form of better clarity over the renewal of Commodity Hub and accretive-acquisitions.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2018-01-19

CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 0.85 Up 0.790