Cache Logistics Trust - CGS-CIMB Research 2019-01-25: Looking For Growth In A Challenging Environment


Cache Logistics Trust - Looking For Growth In A Challenging Environment

  • Cache Logistics Trust's FY18 DPU of 5.903 Scts was in line with our and consensus forecasts, driven by acquisitions in Australia but offset by Singapore’s tenuous performance.
  • Given Singapore’s challenging conditions, growth may come from abroad.
  • Maintain HOLD due to benign growth outlook; Target Price lowered to S$0.74.

FY18 DPU in line, driven by Australian acquisitions

  • CACHE LOGISTICS TRUST (SGX:K2LU)'s FY18 DPU of 5.903 Scts (-10.3% y-o-y) was in line with our and consensus expectations. This was driven by a 4.2 y-o-y increase in NPI due to the acquisition of 9 Australian properties in Feb 18, but offset by a fall in Singapore NPI due to lower conversion of Commodity Hub from master lease to multi-tenancy, and the divestment of 40 Alps Ave.
  • The fall in DPU was also partly attributable to an enlarged units base from the rights issue in 3Q17; on a like-for-like basis, DPU would have fallen by 8.6%.

Still filling up Commodity Hub

  • Committed occupancy dipped slightly to 95.0% (96.9% in 3Q18) due to the expiry of some short-term leases in Commodity Hub, while rental reversions for 4Q18 were -4.4% (-6.6% in 3Q18). In Commodity Hub, rents are below master leased rates previously received from CWT.
  • Cache Logistics Trust renewed/leased 336.7k sqft of space in 4Q18 (1,331.6 sqft in FY18). In 2019, c.19% of leases will expire with more than half attributable to Commodity Hub and Precise 2; this represents 22.0% of Gross Rental Income.

Catching the Korean wave

  • During the analyst briefing, Cache Logistics Trust's management said South Korea could be a possible location for expansion due to the ARA’s presence and similar risk profile and cap rates to Australia. We believe that in order to undertake meaningful acquisitions, divestments of underperforming properties or assets with shorter land lease tenures could be done.

Capital management remains robust

  • Financing cost and aggregate leverage increased to 3.81% (3.72% in 3Q18) and 36.2% (35.6% in 3Q18), respectively, due to higher SOR rates and loan drawdowns.
  • Post-refinancing of expiring debt, weighted average debt maturity is 3.9 years (2.2 years in 3Q18) and the proportion of borrowings hedged to fixed rates is 75.2% (61.2% in 3Q18). The proportion of unencumbered properties also increased from 37% to 87% post-refinancing.

Maintain HOLD with a lower Target Price of S$0.74

  • We lower our FY19-21F DPU estimates by 1.3%-5.3% after adjusting our occupancy assumptions for Commodity Hub and Precise 2, foreign exchange assumptions for the A$ and rental growth assumptions to better reflect market conditions.
  • Given the benign growth outlook, we maintain our HOLD call, with a lower Target Price of S$0.74.
  • Upside risks would be the distribution of retained rental top-up of S$2.7m pending resolution from the Inland Revenue Authority of Singapore.
  • Downside risk would be slower take-up of space.

LOCK Mun Yee CGS-CIMB Research | Ervin SEOW CGS-CIMB Research | 2019-01-25
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.74 DOWN 0.780