Cache Logistics Trust - Maybank Kim Eng 2018-04-26: A Strong Start

CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust - A Strong Start

Maintain BUY as 1Q18 results were strong, as expected and Cache’s growth profile is improving.
Its nine new Australian acquisitions bolstered NPI growth by 10% in 1Q. Rising contributions from these new assets validate its overseas diversification push.
Also, we see stronger growth visibility for Cache ahead as rents in Singapore are stabilising as leasing is picking up.
We adjusted our forecasts slightly but our DDM-based Target Price stays at SGD0.95 (WACC: 7.8%, LTG: 1.5%), giving investors an attractive 22% total return upside.

Cache’s 1Q18 revenue and NPI jumped 7.0% y-o-y and 10.0% y-o-y, driven by income from new acquisitions (nine-property Australian portfolio in Feb 2018, and the Spotlight warehouse in Mar 2017). Excluding the capital distributions in 1Q17, 1Q18 DPU fell 7.2% y-o-y to SGD1.51cts, as the SGD100m rights issuance in Sep 2017 expanded Cache’s unit base.
Portfolio occupancy improved q-o-q to 97.3% with WALE extended from 3.4 to 3.5 years at end-Mar 2018.

The portfolio acquisition completed in 1Q18, its largest to-date, has strengthened Cache’s growth profile, with Australia’s NPI contribution rising y-o-y from 15% to 20%, as its AUM share jumps from 17% to 28%.
Cache in Jan 2018 announced the divestment of Hi-Speed Logistics Centre for SGD73.8m, 7% above its last valuation.
Post the repayment of debt from the sales proceeds, we estimate aggregate leverage should improve to 35.2% from 38.5% as at end-Mar 2018. We estimate SGD110m in debt headroom for potential acquisition growth opportunities.

We have revised estimates with the expiry of the master lease at CWT Commodity Hub in Apr 2018, and its conversion to a multi-tenanted asset.
While CWT continues to lease 61% of the 2.3m sf premises, Cache has successfully secured 86% in committed occupancy beyond this expiry.

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/ 2018-04-26

SGX Stock Analyst Report HOLD Maintain HOLD 0.95 Same 0.95