Results a Slight Miss, Stay at BUY

• CACHE LOGISTICS TRUST (SGX:K2LU)’s 4Q19 missed both consensus’ and our estimates (by 3-5%) as DPU fell 8.4% y-o-y, due to weaker-than-expected performance in its S’pore portfolio and weaker AUD.
• We believe fundamentals remain sound with improving committed occupancies in S’pore and DPU visibility better supported by its higher Australian contributions. We expect NPIs to recover as S’pore rents stabilise and leasing demand picks up from 2H20.
• Valuations are compelling at ~8% dividend yield, with catalyst from an earlier than anticipated DPU recovery. We lower estimates by 5-6% to reflect slower than expected S’pore rental growth assumptions, and DDM-based Target Price by 6% (COE: 8.7%, LTG: 1.5%) to $0.80. Maintain BUY.

SG Recovery Underway

• Cache Logistics Trust's Revenue and NPI fell 12.2% y-o-y and 8.3% y-o-y due to
  1. conversion of its Cache Gul LogisCentre master lease into multi-tenancies,
  2. transitory downtime at Commodity Hub, and
  3. lower signing rents.
• S’pore’s revenues fell 13.3% y-o-y and 3.2% q-o-q but committed occupancy picked up q-o-q from 92.8% to 94.2% as of end-Dec 2019. CWT’s contribution to its gross rental income declined to 10.7% and is behind DHL’s (14.1% contribution).
• Cache Logistics Trust has secured 202k sf in new lease commitments in 4Q19 (3% of total NLA) at +9.1% rental reversions. We see industrial rents bottoming out, and management is optimistic of the rental growth profile for its expiries.

Australia Assets Lift DPU Visibility

• Revenue from Australia declined 8.8% y-o-y in 4Q19 due to a weaker AUD. Supply in Australia remains tight, against a backdrop of growing demand, which should support occupancies and rents. Australia’s 3.3-year WALE supports a 3.0-year portfolio WALE and improves DPU visibility.
• Aggregate leverage rose from 38.3% to 40.1%, leaving SGD170m in debt headroom (at 45% leverage limit). We see interest cost savings with the refinancing of its AUD45.8m of debt due in FY20.
• Management will stay focused on capital recycling, and is eyeing assets in Singapore, Australia and S.Korea.

Source: Maybank Kim Eng Research - 23 Jan 2020