Cache Logistics Trust - OCBC Investment 2019-01-28: Revising Our Expectations


Cache Logistics Trust - Revising Our Expectations

  • Cache Logistics Trust's 4Q18 DPU -5.9% y-o-y but +1.8% q-o-q.
  • 7.5% FY19F yield as at 25 Jan close.
  • Fair Value of S$0.76.

4Q18 results within expectations

  • CACHE LOGISTICS TRUST (SGX:K2LU)'s 4Q18 results were within expectations. 4Q18 revenue increased 4.8% to S$31.0m while NPI slipped 0.6% to S$23.4m. In particular, NPI was dragged down by
    1. a lower contribution from Commodity Hub,
    2. the absence of income from Hi-Speed Logistics Centre which was divested in May 2018, and
    3. a lower contribution from 51 Alps Ave due to its one-time rental top-up in 4Q17.
  • Cache Logistics Trust's 4Q18 distributable amount to unitholders dropped 5.3% y-o-y but was up 2.0% q-o-q to S$16.2m. Similarly, 4Q18 DPU dropped 5.9% y-o-y but was up 1.8% q-o-q to 1.502 S cents.
  • FY18 DPU came in at 5.903 S cents which makes up 101.7% of our initial full-year forecast.

Pushing back expectations for bottoming of rental cycle

  • Cache Logistics Trust's portfolio occupancy stood at 95.0% as at end-FY18 and rental reversions were -4.4% for the quarter and -4.5% for the year.
  • We previously expected rents within the portfolio to bottom either end-2018 or early 2019, but now believe that a clearer pick-up in rental rates will only be seen closer to mid-to late-2019 instead.
  • Leases representing 18.7% of Cache Logistics Trust's portfolio NLA and 22.0% of total gross rental income are expiring in 2019. Notably, one such lease is that for the single-tenanted Precise Two, a three-storey ramp-up warehouse within Jurong Industrial Estate – the asset accounted for 5.1% of the gross rental income in FY18. The existing tenant, Precise Development, will take up 20% of the asset’s NLA post lease expiry. Given that the asset is relatively new and in a desirable location, we are currently forecasting a decent 80% occupancy for the asset post-expiry.

Positive on capital recycling

  • Management continues to focus on divesting short leasehold or lesser-performing properties and on re-investing into freehold or long leasehold assets. Geographies for potential acquisitions include Australia, New Zealand, and Korea. Recall that in FY18, Cache Logistics Trust divested two assets (Hi-Speed Logistics Centre in Singapore and Jinshan Chemical Warehouse in China) and acquired a portfolio of nine warehouses in Australia. We continue to be positive on the management’s capital recycling efforts.
  • As at end-FY18, Cache Logistics Trust's gearing stands at 36.2% and the Singapore portfolio is entirely unencumbered.
  • Since our BUY call on 1 Aug 2018 (see report: Cache Logistics Trust - Create A Cache Ahead Of The Curve), the REIT has posted total returns of +0.7%, outperforming the Straits Times Index by 2.7 ppt. After adjustments, our fair value falls from S$0.78 to S$0.76.
  • As at 25 Jan’s close, Cache Logistics Trust is trading at 7.5% FY19F yield. Given our new fair value, we downgrade CACHE from Buy to HOLD.

Deborah Ong OCBC Investment Research | 2019-01-28
SGX Stock Analyst Report HOLD DOWNGRADE BUY 0.76 DOWN 0.780