Cache Logistics Trust - Maybank Kim Eng 2019-10-29: Weak As Expected, Recovery Underway

CACHE LOGISTICS TRUST (SGX:K2LU)

Cache Logistics Trust - Weak As Expected, Recovery Underway

CACHE LOGISTICS TRUST (SGX:K2LU)'s 3Q19 DPU of SGD1.31cts fell 11.0% y-o-y, 0.6% q-o-q, mainly due to weaker-than-expected reversions in S’pore. See Cache Logistics Trust Announcements. The weak 9M19 DPU was in line with the Street.
Fundamentals remain sound, given high 92.8% pre-committed occupancy in S’pore and DPUs backed by rising Australian contributions. We see NPIs recovering as S’pore rents stabilise and leasing demand picks up from FY20.
Valuations are compelling at 8.0% dividend yield, with earlier-than-anticipated DPU recovery a catalyst.

We cut estimates by 5- 6% to reflect slower-than-expected S’pore rental growth assumptions, and DDM-based Target Price 6% to SGD0.85 (COE: 8.4%, LTG: 1.5%). Maintain BUY.
(See Cache Logistics Trust Share Price; Cache Logistics Trust Target Price; Cache Logistics Trust Dividend History)

Cache Logistics Trust's 3Q19 revenue and NPI fell 12.0% y-o-y and 8.3% y-o-y, and was -0.3% q-o-q and +3.3% q-o-q. The performance was mainly due to:
1. conversion of its Cache Gul LogisCentre master lease into multi-tenancies;
2. transitory downtime at Commodity Hub; and
3. expiring leases at Pandan Logistics Hub, Changi DistriCentre 1 and 41-51 Mills Road in Melbourne, Australia.
S’pore’s revenues fell 16.8% y-o-y, 2.4% q-o-q but committed occupancy picked up q-o-q from 86.1% to 92.8% as of end-Sep 2019. CWT’s contribution to its gross rental income has fallen further q-o-q from 14.8% to 10.7%, and it now ranks behind DHL (14.3% contribution).
Management secured 609k sf in lease commitments during the quarter (7% of total NLA), including 548k in renewals at -11.9% rental reversions, with 1.1% of NLA expiries remaining for FY19.

Revenue from Australia rose 7.6% y-o-y and 5.6% q-o-q, helped by the AUD41.2m (SGD39.7m) Altona warehouse acquisition (at 6.8% NPI yield). Supply in Australia is tight, against a backdrop of growing demand. Its 3.6-year WALE has supported a 3.2-year portfolio WALE.
Aggregate leverage rose from 37.9% to 38.3%, leaving SGD90-220m in debt headroom. We expect interest cost savings as it refinanced AUD72.6m of debt due in 2019-20.
Management will remain focused on capital recycling, eyeing freehold assets in Australia and New Zealand.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-10-29

SGX Stock Analyst Report BUY MAINTAIN BUY 0.85 DOWN 0.900