Weak 9M19 in Line With Street, Offers 8% Yield

• CACHE LOGISTICS TRUST (SGX:K2LU)'s 3Q19 DPU of SGD1.31cts fell 11.0% y-o-y, 0.6% q-o-q, mainly due to weaker-than-expected reversions in S’pore. See Cache Logistics Trust Announcements. The weak 9M19 DPU was in line with the Street.
• Fundamentals remain sound, given high 92.8% pre-committed occupancy in S’pore and DPUs backed by rising Australian contributions. We see NPIs recovering as S’pore rents stabilise and leasing demand picks up from FY20.
• Valuations are compelling at 8.0% dividend yield, with earlier-than-anticipated DPU recovery a catalyst.
• We cut estimates by 5- 6% to reflect slower-than-expected S’pore rental growth assumptions, and DDM-based Target Price 6% to SGD0.85 (COE: 8.4%, LTG: 1.5%). Maintain BUY.

S’pore Contribution Lower; Firm Leasing Momentum

• Cache Logistics Trust's 3Q19 revenue and NPI fell 12.0% y-o-y and 8.3% y-o-y, and was -0.3% q-o-q and +3.3% q-o-q. The performance was mainly due to:
  1. conversion of its Cache Gul LogisCentre master lease into multi-tenancies;
  2. transitory downtime at Commodity Hub; and
  3. expiring leases at Pandan Logistics Hub, Changi DistriCentre 1 and 41-51 Mills Road in Melbourne, Australia.
• S’pore’s revenues fell 16.8% y-o-y, 2.4% q-o-q but committed occupancy picked up q-o-q from 86.1% to 92.8% as of end-Sep 2019. CWT’s contribution to its gross rental income has fallen further q-o-q from 14.8% to 10.7%, and it now ranks behind DHL (14.3% contribution).
• Management secured 609k sf in lease commitments during the quarter (7% of total NLA), including 548k in renewals at -11.9% rental reversions, with 1.1% of NLA expiries remaining for FY19.

Australian Assets - Growth Intact

• Revenue from Australia rose 7.6% y-o-y and 5.6% q-o-q, helped by the AUD41.2m (SGD39.7m) Altona warehouse acquisition (at 6.8% NPI yield). Supply in Australia is tight, against a backdrop of growing demand. Its 3.6-year WALE has supported a 3.2-year portfolio WALE.
• Aggregate leverage rose from 37.9% to 38.3%, leaving SGD90-220m in debt headroom. We expect interest cost savings as it refinanced AUD72.6m of debt due in 2019-20.
• Management will remain focused on capital recycling, eyeing freehold assets in Australia and New Zealand.

Source: Maybank Kim Eng Research - 29 Oct 2019