Cache Logistics Trust - RHB Invest 2019-06-17: A Bumper 2Q19 Awaits; Keep BUY


Cache Logistics Trust - A Bumper 2Q19 Awaits; Keep BUY

  • Maintain BUY, new DDM-derived SGD0.83 Target Price from SGD0.81, 8% upside with 8% yield.
  • With tax transparency granted on the 51AA settlement sum, CACHE LOGISTICS TRUST (SGX:K2LU) will pay a retained lump sum of ~SGD2.9m in 2Q, which should boost DPU.
  • Market concerns over CWT master leases are also slightly overdone, as the leased space is backed by end-users/clients.
  • Valuations remain attractive, with a FY19F dividend yield of 8% (~200 bps higher than S-REITs average), and P/BV of 1.1x.

Favourable resolution of 51AA tax matter will boost 2Q DPU.

  • In April, Cache Logistics Trust announced that the Inland Revenue Authority of Singapore (IRAS) granted tax transparency on SGD7.4m, out of the total SGD8.2m settlement sum it received from CWT Pte Ltd (CWT) over lease disputes on 51 Alps Avenue (51AA).
  • Of this sum, Cache Logistics Trust will pay out ~SGD2.9m, which is the estimated rental shortfall that it has retained since 4Q16. The balance will then be evenly distributed (~SGD0.5m per quarter) over the remaining period until Aug 2021. The above top-up amount will result in a one-off 2Q DPU uplift of ~SGD0.0025 (16% of 1Q19 DPU).

Strengthening Australia exposure; possible Korean asset acquisitions in near term.

  • Cache Logistics Trust recently completed the acquisition of a warehouse in Victoria, Australia, which it purchased for AUD41.2m. Rental contributions should kick in from 2Q19 onwards.
  • The asset comes with an initial NPI yield of 6.8%, higher than its existing portfolio with inbuilt rental rate escalations of 3.25% pa. Post acquisition, Australia currently accounts for 31% of its total assets under management, with Singapore accounting for rest.
  • Cache Logistics Trust is now actively studying the South Korean logistics market, with the view of potentially acquiring ARA Asset Management’s Korean logistics assets. With gearing currently at 37.4%, we believe the future acquisitions will be funded via a combination of debt and equity.

CWT leasing risk is manageable.

  • CWT International, the parent of CWT, defaulted on its interest payments in Apr 2019 – which prompted investor concerns over CWT’s ability to fulfil its master lease agreement with Cache Logistics Trust. We believe the leasing risks are manageable due to three reasons.
    • First, the master lease space has been over time.
    • Second, CWT has not defaulted on its rental draw upon any default.
    • Third, the weighted average lease expiry of CWT leases is short ( < 1 year). Cache Logistics Trust has also been carefully managing CWT master lease risks over 38% in FY15.

DPU adjustments.

  • We lift FY19-21F DPU by 1-4%, factoring in rental top-up payments from 51AA leases.

Vijay Natarajan RHB Securities Research | 2019-06-17
SGX Stock Analyst Report BUY MAINTAIN BUY 0.83 UP 0.810