The outlook is negative. Negative rent reversions expected to continue in 2019; and the expiry of 22% of portfolio leases by rental income could pose a challenge as new space in 2018 continues to be absorbed in 2019. The conversion of master lease for Precise Two is a source of vacancy risk, but is limited to about 3.6% of portfolio rental income, by our estimate.
The Manager intends to continue recycling capital into freehold assets. This will likely continue in Australia. Korea is a possible new geography as the Sponsor, ARA, has a presence there. However we see some challenges to DPU accretion, as capitalisation rates in Australia and Korea are 6%-7.25% and 6%-7% respectively, compared to the current DPU yield of 7%.
Maintain Neutral; unchanged target price of $0.75
Our target price represents an implied 1.14x FY19e P/NAV multiple.
Cache Logistics Trust trades at a lower P/NAV multiple and higher yield than its logistics peers.