In Line

• CACHE LOGISTICS TRUST (SGX:K2LU)'s 2Q19 DPU of SGD1.32cts was down 6.9% y-o-y, largely due to transitory pressures. 6M19 DPU was in line at 47% of both consensus and our estimates.
• Fundamentals remain sound, given high pre-committed occupancy in Singapore now at 92.6%, and with its DPU growth profile now backed by rising Australian contributions. Looking ahead, we see NPIs recovering as Singapore rents stabilise and leasing demand picks up.
• Valuations are compelling at 7.7% dividend yields; medium term DPU recovery a catalyst. We raised estimates by 1-2% to factor in its Australian deal, and raised our DDM-based Target Price to SGD0.90 (COE: 7.9%, LTG: 1.5%).

Transitory Downtime in Singapore, Recovery in 2H

• Cache Logistics Trust's 2Q19 revenue and NPI fell 7.4% y-o-y and 5.4% y-o-y, mainly attributed to
  1. conversion of its master lease at Precise Two (now renamed as Cache Gul LogisCentre) into multi-tenancies,
  2. divestment of its Jinshan chemical warehouse, and
  3. transitory downtime at Commodity Hub.
• As such, its Singapore revenues fell 10.5% y-o-y, 13.3% q-o-q, as committed occupancy dipped from 92.2% to 86.1%; but as of end-Jun 2019 however, Cache Logistics Trust has secured leases to push its committed occupancy up to 92.6%.
• CWT’s contribution to its gross rental income has also fallen q-o-q from 16.5% to 14.8%, with its WALE exposure at 0.8 years, against a 3.2-year portfolio WALE. Management seemed confident on negotiating directly with end-users on CWT’s remaining leased space.

Scaling Deals?

• Cache Logistics Trust's revenue from Australia rose 6 of 182-198 Maidstone Street in Altona, Victoria at yield.
• Aggregate leverage rose from 37.4% to 37.9%, leaving SGD100-230m in debt headroom.
• Management continues to Australia and New Zealand in Korea (likely for the higher market yields).

Source: Maybank Kim Eng Research - 25 Jul 2019