Cache Logistics Trust - CGS-CIMB Research 2018-07-31: No Surprises

CACHE LOGISTICS TRUST SGX:K2LU

Cache Logistics Trust - No Surprises

Cache Logistics Trust’s 2Q/1H18 DPU was broadly in line with expectations, at 27%/49% of our FY18F forecast.
Cache actively leased 762k sq ft of space in 2Q18 with negative reversion of -4%.
Increased Commodity Hub committed occupancy post conversion to a multi-tenanted building.
Gearing at a healthy 35.3% at end-2Q18.
Maintain HOLD, given limited near-term earnings growth. Our Target Price is lowered slightly to S$0.78.

Cache Logistics Trust’s 2Q18 revenue rose 7.7% y-o-y to S$30m largely due to the contribution from nine Australian properties acquired in Feb 2018. However, net property income (NPI) and distribution income fell 1.1%/6.3% y-o-y in 2Q18 due to lower margins from the conversion of CWT Commodity Hub into a multi-tenanted building and distribution to perpetual security holders.
2Q18 DPU of 1.42 Scts is 17.6% below that of 1Q17 due to an expansion in unit base. 2Q/1H18 DPU was broadly within our expectations, at 27%/49% of our full-year forecast.

Cache Logistics Trust leased/renewed 762k sq ft of space in 2Q18 (925.1k sq ft YTD) and has largely de-risked its lease expiries, with only 3.1% of rental income due to be re-contracted for the remainder of this year.
Portfolio committed occupancy stands at 96.8% as at end 2Q18, an increase from 92.8% at end 1Q18. The trust achieved negative reversions of -4% for 2Q18 (-4.8% YTD).

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Following the conversion of Commodity Hub into a multi-tenanted property, the committed occupancy level has risen from 86% as at Apr 2018 to of 92.7% as at Jun 2018. Apart from CWT, other tenants in the property include LF Asia (pharmaceutical distributor), DKSH (logistics), F&N Foods and Yong Wen Group.

Gearing has improved to 35.3% at end-2Q18. Cache Logistics Trust has hedged 61.7% of its borrowings at fixed rates, while all-in funding cost stands at 3.61%. In our view, this would enable the trust to pursue growth via more acquisitions from ARA’s network, as well as third-party assets.

We leave our FY18-20F DPU estimates unchanged. However, our DDM-based Target Price is slightly lowered to S$0.78 as we tweak our cost of equity assumption to 8.79% (vs. 8.64% previously).
Given the limited DPU growth expected, we retain our HOLD call.
Upside risks could come from the distribution of the retained rental top-up of S$2.4m (pending the Inland Revenue Authority of Singapore’s, IRAS, resolution) and improved logistics market.
Downside risk could come from slow take-up of space.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://research.itradecimb.com/ 2018-07-31

SGX Stock Analyst Report HOLD Maintain HOLD 0.78 Down 0.800