Cache Logistics Trust - RHB Invest 2019-01-28: Making A Slow Turnaround


Cache Logistics Trust - Making A Slow Turnaround

Maintain BUY with a lower TP of SGD0.81 (previously SGD0.84), 8% upside, with an 8% yield.

  • CACHE LOGISTICS TRUST (SGX:K2LU)’s 4Q18 results met expectations. We lowered FY19-21F DPU estimates by 3-5% factoring in lower occupancies and slower rent growth.
  • While we had expected SG logistics rents to stabilise and recover by the start of 2019, our discussions with landlords indicated the sector is still grappling with a huge supply from previous years. We now expect the logistics sector rents to bottom out only by end-2019.
  • The outlook for the Australian logistics market remains stable. Despite the modest outlook, valuations for Cache Logistics Trust are relatively attractive with yields of c.8%, and 1.1x P/B.
  • Key catalysts are accretive acquisitions and a positive outcome of the 51AA tax matter.

Slight dip in occupancy, rents still under pressure.

  • Portfolio occupancy dipped 1.9 ppt q-o-q to 95% mainly due to a lower occupancy of c.89% (3Q18: 94%) at CWT commodity Hub (CH), with the exit of short-term tenants. Cache Logistics Trust is in active discussions to fill the remaining space but noted markets remain highly competitive and the main focus would likely be on keeping high occupancies with a rental trade-off.
  • With the expiry of the master lease in Apr 2019, Precise Two (P2) will be converted into a multi-tenanted property. The current master-lessee has agreed to take up to c.20% of space. Management is currently exploring various options for this asset, including a possible divestment.
  • A ratio of c.19% of Cache Logistics Trust's total leases (by NLA) is due for renewal in 2019 and we expect rent reversions to range from -1% to -3% (FY18: -4.6%).

Korean asset acquisitions likely in near-term.

  • In Jul 2018, ARA asset management acquired full control of Cache Logistics Trust’s manager and property manager by purchasing the remaining stake from CWT Pte. Ltd. and also currently it holds a 9.6% stake in Cache Logistics Trust. With the challenging SG logistics sector, management remains keen on expanding its overseas portfolio (in particular in Australia and Korea) as a part of its diversification strategy.
  • Cache Logistics Trust is actively studying the South Korean logistics market with the view of potentially acquiring ARA’s Korean logistics assets. Currently, SG assets account for c.71% of its asset value, with assets in Australia making up the rest.

IRAS tax clarifications on 51AA still pending.

  • Pending clarification on a tax treatment, Cache Logistics Trust has retained SGD2.7m of the rental top-up sum (total SGD8.2m) received from the resolution of 51 Alps Avenue (51AA) leases.
  • Management is hopeful of getting a favourable response by 1H19 (highly likely, in our view) which could result in a one-off DPU boost of c.5%. Our forecasts currently do not factor in this potential upside.

Vijay Natarajan RHB Securities Research | 2019-01-28
SGX Stock Analyst Report BUY MAINTAIN BUY 0.81 DOWN 0.840