Cache Logistics Trust - Phillip Securities 2018-04-26: Bear With The Initial Pain Of Portfolio Rebalancing Strategy

Cache Logistics Trust - Phillip Securities 2018-04-26: Bear With The Initial Pain Of Portfolio Rebalancing Strategy CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust - Bear With The Initial Pain Of Portfolio Rebalancing Strategy

  • Cache Logistics Trust's gross revenue and DPU were within our expectation.
  • Gross revenue and DPU met 24% and 24% respectively, of consensus FY18 estimates.
  • Key events after the reporting period are the conversion of CWT Commodity Hub (April 12) and the pending divestment of Hi-Speed Logistics Centre.
  • Maintain ACCUMULATE; unchanged target price of $0.91.

The Positives

  • Portfolio WALE lengthened q-o-q from 3.4 years to 3.5 years. This is the effect of the nine Australia properties that were acquired in February 2018. The nine Australia properties had a combined WALE of 5.0 years, as at Dec 31, 2017.
  • Renewal risk for 2018 limited to 6.7% of GRI. Furthermore, there are no master leases expiring for the rest of year. The next master lease expiry in the portfolio is at Precise Two (15 Gul Way) on March 31, 2019.
  • Current aggregate leverage of 38.5% to be further reduced to 35.2%. Hi-Speed Logistics Centre (40 Alps Ave) is pending divestment for S$73.8mn and net proceeds will be used to repay current portion of borrowings. At 35.2% aggregate leverage, we estimate a debt headroom of S$108mn available (assume 40% gearing) to grow the pro forma AUM of S$1.32bn by 8%.

The Negatives

  • Updated portfolio occupancy as at April 12 is lower than the 97.3% reported as at March 31. This is due to the conversion of CWT Commodity Hub from master lease to multi-tenancy on April 12. Committed occupancy at the property is 86%, with CWT retaining 61%. Committed occupancy of 86% was below our expectation and we had lowered our estimates accordingly in our most recent update report (Cache Logistics Trust - CWT Commodity Hub Converts To Multi-tenancy Lease dated April 13).
  • Distribution income to unitholders was eroded by distribution to perpetual securities holders. Underlying distributable income was only 5.5% higher y-o-y, despite 10% higher net property income. We highlighted in an earlier update report (Cache Logistics Trust - Fuelled and Ready dated Jan 19) that the use of perpetual securities would give only slight DPU accretion, despite a much larger AUM.


  • The outlook is stable. While the manager did not disclose the rental reversions during the quarter, we think it is reasonable to assume it was high single-digit negative or worse. Nonetheless, the portfolio is expected to be stable for the remainder of the year, with renewal risk limited to 6.7% of GRI against a backdrop of tapering supply of new space. 
  • Positive catalyst from the utilisation of available debt headroom to acquire; and negative surprise from worse than expected demand for space, delaying the recovery in rents.

Maintain ACCUMULATE; unchanged target price of $0.91

  • No changes to our estimates. Our target price represents an implied 1.28x FY18e P/NAV multiple.

Relative valuation

  • Cache Logistics Trust is fairly valued relative to logistics peers in terms of P/NAV multiple. But it has a higher than average trailing yield, which suggests that there is room for yield to compress.

Richard Leow CFA Phillip Securities | 2018-04-26
SGX Stock Analyst Report ACCUMULATE Maintain ACCUMULATE 0.910 Same 0.910