• QoQ improvement in SG NPI
• 8.2% FY18F yield as at 26 Oct close
• FV of S$0.78

3Q18 DPU from operations down 3.3% YoY…

Cache Logistics Trust’s (CACHE) 3Q18 results were within expectations. Revenue increased 14.8% YoY to S$31.5m, mainly due to the nine Australian warehouses which were acquired in Feb, higher revenue from Schenker’s new lease agreement, the top-up to market rental following the 51 Alps Avenue resolution, and higher revenue from CWT Commodity Hub.

NPI increased 8.1% YoY to S$23.1m. 3Q18 DPU from operations dropped 3.3% YoY to 1.439 S cents, while DPU from capital dropped 32.1% YoY to 0.036 S cents. As a result, total DPU dropped 4.3% YoY to 1.475 S cents, making up 24.5% of our initial full-year forecast.

But Up 4.2% QoQ, on the Back of 9.0% Growth in SG NPI

On a QoQ basis, revenue increased 4.9% while NPI increased 6.6%. The QoQ increase in NPI was driven by a 9.0% increase in Singapore portfolio NPI, mainly due to

1. higher NPI from CWT Commodity Hub on the back of higher occupancy,
2. slightly higher NPI from several Singapore properties, which more than offset
3. the loss of income from the Hi-Speed Logistics Centre in May 2018.

Contributions from Australia remained stable QoQ. As a result, 3Q18 DPU from operations increased 4.2% QoQ, while DPU from capital dropped 5.3% QoQ. Total DPU increased 3.9% QoQ.

Poised for Industry Recovery

We believe that CACHE is reasonably positioned for the industrial sector recovery given its lease expiry profile and high-proportion of multitenanted properties. We expect rents within the portfolio to bottom at end-2018 or early 2019. We are cognizant of the potential impact of USChina trade tensions on business sentiment, but still expect to see operational improvement from CACHE with the improvement in the demandsupply balance. As it stands, only 2.0% of CACHE’s portfolio by gross rental income is up for renewal for 4Q18 while 28.2% is up for renewal in 2019.

Meanwhile, portfolio rebalancing continues to be active. Earlier in Oct, CACHE announced the proposed divestment of Jinshan Chemical Warehouse in Shanghai for ~S$17.8m, a 22.5% premium over the original purchase price when it was acquired in Jun 2011. The divestment is expected to be completed by the end of the year. As at 30 September 2018, CACHE’s portfolio occupancy stood at 96.9%.

After adjustments, our fair value falls from S$0.81 to S$0.78. As at 26 Oct’s close, CACHE is trading at 8.2% FY18F yield. Using Bloomberg consensus, CACHE is trading at a blended forward dividend yield of 8.6%, 0.6 standard deviations above its average since listing. Maintain BUY.

Source: OCBC Research - 29 Oct 2018