• Cache Logistics Trust's 2Q DPU of 1.321 Scts was below at 22% of our estimate. 1H DPU of 2.834 Scts fell short at 46% of our and consensus FY19F on weak occupancies.
• Post 2Q19, Cache Logistics Trust secured commitments for 308,000 sq ft of space that raised committed occupancy to 92.6%.
• We maintain our Hold call with a lower Target Price of S$0.76.

CACHE's 2Q19 Results Below Expectations at 22% of Our/consensus Forecasts

• CACHE LOGISTICS TRUST (SGX:K2LU)'s 2Q19 DPU of 1.321 Scts (-6.9% y-o-y, -12.7% q-o-q) was below expectations at 22% of our/consensus FY19 DPU forecasts. This was due to weak occupancies at Commodity Hub and the conversion of Precise Two from a single tenant to a multi-tenanted building.
• NPI margin improved y-o-y due to the adoption of FRS 116 where S$1.5m of land rent was excluded from property expenses.
• Cache Logistics Trust's 1H19 DPU of 2.834 Scts (-3.1% y-o-y) was also below our/expectations at 46% of FY19 DPU forecasts.

Occupancy Took a Hit But Could See Improvements Soon

• Portfolio committed occupancy declined from 94.8% to a further 308,000 sq ft of space, representing more than half the remaining expiring leases in FY19, after the quarter ended. This raises committed occupancy to 92.6%.
• Rental reversion during 2Q19 was Australia which was previously under-rented.

Capital Structure Still

• Gearing and natural time decay.
• Upcoming debt maturities in FY19 and FY20 comprise A$-denominated loans and we do not rule out a lower cost of debt due to the declining cash rates in Australia.

Maintain Hold With a Lower Target Price of S$0.76

• We adjust our FY19-21F DPU forecasts to account for the master lease conversion and transitory vacancies. We also period until Aug 2021. Our DDM-based Target Price is lowered to S$0.76 as a result.
• Upside risks to our call include a faster recovery of the logistics market and accretive acquisitions. Cache Logistics Trust previously mentioned South Korea as a possible market for expansion given its sponsor’s presence there. We think that a meaningful entry into this new market could be a portfolio deal rather than a single-asset acquisition.
• Further downside risks would be large tenant non-renewals and slower backfilling of vacant space. On this front, CWT remains current with its rents and Cache Logistics Trust maintains security deposits on this account.

Source: CGS-CIMB Research - 25 Jul 2019