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

Cache Logistics Trust - Maybank Kim Eng 2018-04-26: A Strong Start CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust - A Strong Start


Stronger growth profile, raising FY19 DPU by 2%

  • 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.



Results tracking ours and consensus forecasts

  • 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.


Proactive portfolio rebalancing to deliver growth

  • 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.


Updating for Commodity Hub master lease expiry

  • 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.


Swing Factors 


Upside 

  • Earlier-than-expected pick-up in leasing demand driving improvement in occupancy. 
  • Better-than-anticipated rental reversion trend. 
  • Accretive acquisitions. 

Downside 

  • 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



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