Cache Logistics Trust: Bear with the initial pain of portfolio rebalancing strategy April 26, 2018 946

PSR Recommendation: ACCUMULATE Status: Maintained
Target Price: SGD0.91
  • Gross revenue and DPU were within our expectation
  • Gross revenue and DPU met 24% and 24% respectively, of consensus FY18 estimates
  • Key events after the reporting period are the conversion of CWT Commodity Hub (April 12) and the pending divestment of Hi-Speed Logistics Centre
  • Maintain Accumulate; unchanged target price of $0.91


The Positives

  • Portfolio WALE lengthened QoQ from 3.4 years to 3.5 years. This is the effect of the nine Australia properties that were acquired in February 2018. The nine Australia properties had a combined WALE of 5.0 years, as at Dec 31, 2017.
  • Renewal risk for 2018 limited to 6.7% of GRI. Furthermore, there are no master leases expiring for the rest of year. The next master lease expiry in the portfolio is at Precise Two (15 Gul Way) on March 31, 2019.
  • Current aggregate leverage of 38.5% to be further reduced to 35.2%. Hi-Speed Logistics Centre (40 Alps Ave) is pending divestment for S$73.8mn and net proceeds will be used to repay current portion of borrowings. At 35.2% aggregate leverage, we estimate a debt headroom of S$108mn available (assume 40% gearing) to grow the pro forma AUM of S$1.32bn by 8%.

The Negatives

  • Updated portfolio occupancy as at April 12 is lower than the 97.3% reported as at March 31. This is due to the conversion of CWT Commodity Hub from master lease to multi-tenancy on April 12. Committed occupancy at the property is 86%, with CWT retaining 61%. Committed occupancy of 86% was below our expectation and we had lowered our estimates accordingly in our most recent update report (April 13).
  • Distribution income to unitholders was eroded by distribution to perpetual securities holders. Underlying distributable income was only 5.5% higher YoY, despite 10% higher net property income. We highlighted in an earlier update report (Jan 19) that the use of perpetual securities would give only slight DPU accretion, despite a much larger AUM.


The outlook is stable. While the manager did not disclose the rental reversions during the quarter, we think it is reasonable to assume it was high single-digit negative or worse. Nonetheless, the portfolio is expected to be stable for the remainder of the year, with renewal risk limited to 6.7% of GRI against a backdrop of tapering supply of new space. Positive catalyst from the utilisation of available debt headroom to acquire; and negative surprise from worse than expected demand for space, delaying the recovery in rents.

Maintain Accumulate; unchanged target price of $0.91

No changes to our estimates. Our target price represents an implied 1.28x FY18e P/NAV multiple.

Relative valuation

Cache Logistics Trust is fairly valued relative to logistics peers in terms of P/NAV multiple. But it has a higher than average trailing yield, which suggests that there is room for yield to compress.


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About the author

Profile photo of Richard Leow

Richard Leow
Research Analyst
Phillip Securities Research Pte Ltd

Richard covers the Transport Sector and Industrial REITs. He graduated with a Master of Science in Applied Finance from the Singapore Management University. He holds the CFTe and FRM certifications and is a CFA charterholder.

He was ranked #2 Top Stock Picker (Asia) for Real Estate Investment Trusts in the 2018 Thomson Reuters Analyst Awards, and ranked #2 Top Stock Picker (Singapore) for Resources & Infrastructure in the 2016 Thomson Reuters Analyst Awards.

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