Cache Logistics Trust - OCBC Investment 2018-01-22: Unit Prices Could Be More Compelling

CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust - Unit Prices Could Be More Compelling

Cache Logistics Trust (CACHE) reported an inline set of FY17 results. FY17 NPI dipped 0.8% YoY to S$87.3m while income available for distribution (DI) from both operations and capital dropped 4.8% y-o-y (DI from operations dropped 3.8% y-o-y).

FY17 DPU from operations and capital fell 10.9% y-o-y to 6.583 S cents. Note that this number is more an accounting figure – the sum of 1Q, 2Q, 3Q, and 4Q17 DPU comes up to 6.738 S cents.
FY17 DPU from operations alone fell 10.0% to 6.418 S cents. Excluding the impact of the rights issue, FY17 DPU (total) would have fallen 6.2% to 7.247 S cents. Notably, 4Q17 NPI increased 10.2% y-o-y, mainly due to the rental top-up in respect of 51 Alps Avenue and the contribution from the Spotlight warehouse.
4Q17 DPU from operations - excluding the rights issue - would have increased 3.6% y-o-y.

Along with the results, Cache Logistics Trust (CACHE) also announced the proposed divestment of Hi-Speed Logistics Centre as part of its rebalancing strategy. The Hi-Speed Logistics Centre is a multi-tenanted ramp-up warehouse, which has a current occupancy rate of 74%. The consideration payable by the purchaser is S$73.8m, which is higher than the S$69.0m valuation as at 31 Dec 2017. The divestment is expected to complete in 1Q18. In this vein, we are positive on CACHE's lowered gearing of 36.3% post the rights issue, as it offers CACHE financial flexibility for future acquisitions.
Management reiterated their commitment to maintaining portfolio quality. Nonetheless, we expect rental reversions to remain negative and volatile through 2018, with some stabilization towards the end of this year.
Our cost of equity drops 9.1% to 8.5% to reflect the lower gearing and resolution of the 51 Alps issue. After adjustments, our fair value remains at S$0.81.
As at last Friday’s closing price, CACHE is trading at a 7.2% FY18F yield. With NAV per unit at 0.716 S cents as at end-2017, CACHE is trading at around 1.23x P/B.
While the operational profile of the REIT has improved in the past few quarters, we believe current unit prices are not particularly compelling given the industry challenges.
Maintain HOLD.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2018-01-22

OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.810 Same 0.810