• 4Q18 DPU -5.9% YoY but +1.8% QoQ
• 7.5% FY19F yield as at 25 Jan close
• FV of S$0.76

4Q18 Results Within Expectations

Cache Logistics Trust's (CACHE) 4Q18 results were within expectations. 4Q18 revenue increased 4.8% to S$31.0m while NPI slipped 0.6% to S$23.4m. In particular, NPI was dragged down by

1. a lower contribution from Commodity Hub,
2. the absence of income from Hi-Speed Logistics Centre which was divested in May 2018, and
3. a lower contribution from 51 Alps Ave due to its one-time rental top-up in 4Q17.

4Q18 distributable amount to unitholders dropped 5.3% YoY but was up 2.0% QoQ to S$16.2m. Similarly, 4Q18 DPU dropped 5.9% YoY but was up 1.8% QoQ to 1.502 S cents. FY18 DPU came in at 5.903 S cents which makes up 101.7% of our initial full-year forecast.

Pushing Back Expectations for Bottoming of Rental Cycle

CACHE’s portfolio occupancy stood at 95.0% as at end-FY18 and rental reversions were -4.4% for the quarter and -4.5% for the year. We previously expected rents within the portfolio to bottom either end-2018 or early 2019, but now believe that a clearer pick-up in rental rates will only be seen closer to mid- to late-2019 instead.

Leases representing 18.7% of CACHE’s portfolio NLA and 22.0% of total gross rental income are expiring in 2019. Notably, one such lease is that for the single-tenanted Precise Two, a threestorey ramp-up warehouse within Jurong Industrial Estate – the asset accounted for 5.1% of the gross rental income in FY18.

The existing tenant, Precise Development, will take up 20% of the asset’s NLA post lease expiry. Given that the asset is relatively new and in a desirable location, we are currently forecasting a decent 80% occupancy for the asset post-expiry.

Positive on Capital Recycling

Management continues to focus on divesting short leasehold or lesser-performing properties and on re-investing into freehold or long leasehold assets. Geographies for potential acquisitions include Australia, New Zealand, and Korea. Recall that in FY18, CACHE divested two assets (Hi-Speed Logistics Centre in Singapore and Jinshan Chemical Warehouse in China) and acquired a portfolio of nine warehouses in Australia.

We continue to be positive on the management’s capital recycling efforts. As at end-FY18, gearing stands at 36.2% and the Singapore portfolio is entirely unencumbered.

Since our Buy call on 1 Aug 2018, the REIT has posted total returns of +0.7%, outperforming the Straits Times Index by 2.7 ppt. After adjustments, our fair value falls from S$0.78 to S$0.76. As at 25 Jan’s close, CACHE is trading at 7.5% FY19F yield. Given our new fair value, we downgrade CACHE from Buy to HOLD.

Source: OCBC Research - 28 Jan 2019