Cache Logistics Trust - DBS Research 2019-01-28: On The Road To Recovery

CACHE LOGISTICS TRUST (SGX:K2LU)

Cache Logistics Trust - On The Road To Recovery

Cache Logistics Trust's 4Q18 DPU of 1.50 Scts – in line.
Showing signs of improvement, but ability to maintain occupancies for upcoming expiries at CWT Commodity Hub and Precise 2 remains key.
Asset recycling to take centre stage as Cache Logistics Trust casts an eye on opportunities abroad.
Maintain HOLD with Target Price of S$0.75.

CACHE LOGISTICS TRUST (SGX:K2LU)'s gross revenue continued to climb in 4Q18, +4.8% y-o-y to nearly S$31m.
This was mainly driven by the acquisition of nine Australian warehouses in February 2018, and higher revenue from CWT Commodity Hub following its conversion from a master-leased to multi-tenanted asset, which helped to offset the absence of income from the divestment of 40 Alps Ave.
Despite this, NPI eased slightly (-0.6% y-o-y) to S$23.4m, reflecting the higher operating cost environment under CWT’s multi-tenancy.
Led by higher interest costs and performance fees on the back of recent asset recycling efforts, distributable income fell 5.3% y-o-y to S$16.2m, resulting in a 5.9% y-o-y drop in DPU to 1.50 Scts.
On a full-year basis, DPU of 5.90 Scts met our projections for FY18.

Cache Logistics Trust saw a 2-ppt dip in portfolio occupancy from 96.6% (3Q) to 95% (4Q), mainly due to the expiry of short-term leases at CWT Commodity Hub during the quarter, which are frictional in nature.
We attribute this mainly to efforts by the Manager to optimise cashflow, as it continues to seek out prospects for the mega facility. Excluding short-term rentals, we note that occupancy at CWT Commodity Hub is currently c.85% - a commendable effort.
Rental reversionary trends, while still negative, moderated from -6.6% in 3Q18 to -4.4% in 4Q18. For FY18, rental reversions averaged -4.5%, a slight improvement vs -4.6% for 9M18.

Gearing levels nudged slightly higher to 36.2% (4Q18) from 35.6% (3Q18).
Post the refinancing of c.S$265m worth of Singapore-dollar borrowings into a new 5.5-year unsecured debt facility, Cache Logistics Trust’s weighted average debt to maturity was
extended from 2.2 to 3.9 years – a positive move amid the rising rate environment.
All-in financing cost also increased from 3.61% to 3.71%, partly due to the higher proportion of borrowings hedged into fixed rates (75.2% in 4Q vs 61.2% in 3Q)
The disencumbering of its Singapore assets (which form c.88% of Cache Logistics Trust’s asset portfolio), should also help drive operational flexibility for the Trust going forward.

For 2019, we note that the bulk of lease expiries will mainly come from CWT Commodity Hub – where the leasing environment has been more challenging given its larger scale, and Precise 2, which is coming off its master lease.
While Cache Logistics Trust’s rent reversionary momentum has generally improved in recent quarters, we believe that upcoming renewals at Precise 2 may detract from the current trend, as the asset undergoes conversion from a master-leased to multi-tenanted facility.
However, this is likely to be asset-specific. Meanwhile, Australian properties should continue to deliver steady growth.

In addition to plans to take on selective asset enhancement and/or redevelopment opportunities, Cache Logistics Trust also signalled intent to further its expansion abroad, which will be supported by ongoing asset recycling efforts.
Leveraging on ARA’s platform, the Manager shared that Australia will remain a key market of focus as it looks to build scale, but is also on the lookout for opportunities in Korea given similar risk management and yield profiles, among others.

Maintain HOLD with Target Price of S$0.75 as we await clearer signs of growth for Cache Logistics Trust.

Carmen TAY DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2019-01-28

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.750 SAME 0.750