In Line Quarter

• CACHE LOGISTICS TRUST (SGX:K2LU)'s 1Q19 DPU of SGD1.51cts was up 0.4% y-o-y and in line with our estimates but ahead of the street. We have kept our estimates and DDM-based Target Price unchanged at SGD0.88 (COE: 8.2%, LTG: 1.5%).
• Fundamentals remain sound on 94.8% portfolio occupancy and rising Australian contributions. Looking ahead, we see NPIs recovering as Singapore rents stabilise and leasing demand picks up.
• Valuations are compelling at 8.5% dividend yields and 0.9x P/BV, both at -1SD of their 8-year averages. AUM has been cleaned up with the divestment of its single China asset, with growth supported by its Australian expansion.
• BUY.

Singapore Occupancies Stable, Low CWT Risk

• Cache Logistics Trust's 1Q19 revenue and NPI rose 6.2% y-o-y and 4.0% y-o-y on higher contribution from its 9-property Australian portfolio deal completed in Feb 2018, and conversion of CWT Commodity Hub from master lease to multi-tenancies. Its Singapore revenue rose 2.7% y-o-y, and committed occupancies were stable at 92.2% (from 92.5% at end-Dec 2018).
• We see limited DPU impact from CWT’s loan default, with its exposure to CWT at 16.5% of gross rental income (down from 20.6% at end-Dec 018), and WALE at less than a year, against a 3.1 year portfolio WALE. Management could look to negotiate directly with end-users on the CWT’s leased space.

Australia Contribution Up on Deals

• Revenue from Australia jumped 25.3% y-o-y with its largest-to-date portfolio acquisition completed in 1Q18. Cache Logistics Trust has followed up with a AUD41.2m deal (182-198 Maidstone Street in Altona, Victoria) at 6.8% NPI yield, which is expected to complete at end-Apr 2019. We estimate this adds 1.0-1.5% to FY19-21 DPUs.
• Aggregate leverage rose from 36.2% to 37.4%, leaving ~SGD200m in debt headroom. Management continues to eye assets in Australia and New Zealand for their freehold land.

DPU Upside With 51 Alps Ave Tax Resolution

• Cache Logistics Trust has achieved a positive resolution with Singapore’s IRAS on 51 Alps Ave – SGD7.4m tax transparency for its rental between Sep 2016 to end-Mar 2019, with SGD2.9m (or SGD0.27cts) to top up its 2Q19 distributions.

Source: Maybank Kim Eng Research - 25 Apr 2019