Cache Logistics Trust - CGS-CIMB Research 2019-07-25: Looking For A Better 3Q


Cache Logistics Trust - Looking For A Better 3Q

  • Cache Logistics Trust's 2Q DPU of 1.321 Scts was below at 22% of our estimate. 1H DPU of 2.834 Scts fell short at 46% of our and consensus FY19F on weak occupancies.
  • Post 2Q19, Cache Logistics Trust secured commitments for 308,000 sq ft of space that raised committed occupancy to 92.6%.
  • We maintain our Hold call with a lower Target Price of S$0.76.

CACHE's 2Q19 results below expectations at 22% of our/consensus forecasts

  • CACHE LOGISTICS TRUST (SGX:K2LU)'s 2Q19 DPU of 1.321 Scts (-6.9% y-o-y, -12.7% q-o-q) was below expectations at 22% of our/consensus FY19 DPU forecasts. This was due to weak occupancies at Commodity Hub and the conversion of Precise Two from a single tenant to a multi-tenanted building.
  • NPI margin improved y-o-y due to the adoption of FRS 116 where S$1.5m of land rent was excluded from property expenses.
  • Cache Logistics Trust's 1H19 DPU of 2.834 Scts (-3.1% y-o-y) was also below our/expectations at 46% of FY19 DPU forecasts.

Occupancy took a hit but could see improvements soon

  • Portfolio committed occupancy declined from 94.8% to a further 308,000 sq ft of space, representing more than half the remaining expiring leases in FY19, after the quarter ended. This raises committed occupancy to 92.6%.
  • Rental reversion during 2Q19 was Australia which was previously under-rented.

Capital structure still

  • Gearing and natural time decay.
  • Upcoming debt maturities in FY19 and FY20 comprise A$-denominated loans and we do not rule out a lower cost of debt due to the declining cash rates in Australia.

Maintain Hold with a lower Target Price of S$0.76

  • We adjust our FY19-21F DPU forecasts to account for the master lease conversion and transitory vacancies. We also period until Aug 2021. Our DDM-based Target Price is lowered to S$0.76 as a result.
  • Upside risks to our call include a faster recovery of the logistics market and accretive acquisitions. Cache Logistics Trust previously mentioned South Korea as a possible market for expansion given its sponsor’s presence there. We think that a meaningful entry into this new market could be a portfolio deal rather than a single-asset acquisition.
  • Further downside risks would be large tenant non-renewals and slower backfilling of vacant space. On this front, CWT remains current with its rents and Cache Logistics Trust maintains security deposits on this account.

LOCK Mun Yee CGS-CIMB Research | Ervin SEOW CGS-CIMB Research | https://research.itradecimb.com/ 2019-07-25
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.76 DOWN 0.780