Cache Logistics Trust - CGS-CIMB Research 2019-04-25: Turning Cautious On CWT Tenancy


Cache Logistics Trust - Turning Cautious On CWT Tenancy

  • Cache Logistics Trust's 1Q19 DPU of 1.513 Scts was in line at 26% of our full-year forecast.
  • CWT is still paying rent though its 16.5% contribution could be an overhang.
  • Maintain HOLD with an unchanged Target Price of S$0.74.

Cache's 1Q19 results in line as DPU increased

  • CACHE LOGISTICS TRUST (SGX:K2LU)'s 1Q19 DPU of 1.513 Scts (+0.4% y-o-y, +0.7% q-o-q) was in line and formed 26% of our FY19 forecast.
  • Revenue grew 6.2% y-o-y, driven by contributions from the 9-property Australia portfolio acquired in Feb 18. Higher tax-exempt income of overseas subsidiaries led to the q-o-q improvement in DPU. NPI margins also improved due to the adoption of FRS 116 for leases, which excluded land rent from property expenses.

Occupancy dipped as rental reversions turned positive

  • Committed occupancy dipped slightly to 94.8% (95.0% in 4Q18) due to non-renewals in Singapore.
  • Rental reversions turned positive at +1.3% from -4.5% in 4Q18 due to 2 renewals and 2 new leases signed during the quarter; this represents about 242k sq ft of space.
  • Weighted average lease expiry by gross rental income dipped slightly to 3.0 years from 3.1 years due to the natural time decay.

No actual impact from CWT yet

  • CWT contributed c.16.5% of Cache Logistics Trust’s gross rental income (‘GRI’) and has not defaulted on its rental. The weighted average lease expiry of CWT’s leases is less than 1 year and Cache Logistics Trust holds c.3 months of rent as deposit.
  • We understand relevant end-users take up almost all the leased area. There are plans to negotiate with end-users and prospective tenants to maintain the occupancy in light of CWT’s lease expiry. We have not assumed a default or significant non-renewals from underlying tenants in our assumptions.

Continued expansion into Australia with acquisition of Maidstone

  • During the quarter Cache Logistics Trust announced the proposed acquisition of a warehouse property at 182-198 Maidstone St in Victoria, Australia for a purchase consideration of A$41.2m. The property has a net lettable area of 37,853 sqm and has an occupancy of 76%.
  • A 2-year rental guarantee totalling A$1.67m for the vacant space was included. This acquisition was funded by a combination of sale proceeds from Jinshan Chemical Warehouse and internal sources of debt. This led to an increase in both financing cost and gearing to 3.87% (3.81% in 4Q18) and 37.4% (36.2% in 4Q18) respectively.

Maintain HOLD with a DDM-based Target Price of S$0.74

  • Our FY19-21F DPU estimates rise as we factor in the acquisition of Maidstone and the additional c.S$2.9m to distributable income in FY19 from the settlement sum that has been granted tax transparency.
  • We also lower our risk free and terminal growth rates due to the more dovish interest rate outlook and weaker growth sentiment.
  • Upside catalysts include a positive resolution to CWT and accretive acquisitions.
  • Downside risks include slower take-up of vacant space and master lease conversions.

LOCK Mun Yee CGS-CIMB Research | Ervin SEOW CGS-CIMB Research | https://research.itradecimb.com/ 2019-04-25
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.740 SAME 0.740