SINGAPORE (Apr 26): Analysts are mostly remaining neutral on Cache Logistics Trust (CacheLog Trust) following its results announcement , but they will be keeping a watchful eye on the trust should CWT Limited default on its rent.
The trust announced on Thursday that its 1Q19 DPU marginally increased by 0.4% y-o-y to 1.513 cents, while distributable income was 1.2% up at $16.3 million.
Gross revenue came in at $30.8 million, 6.2% higher y-o-y, bringing net property income (NPI) to $23.8 million, 4.0% higher y-o-y.
See: Cache Log Trust posts 0.4% increase in 1Q DPU to 1.513 cents
Committed occupancy saw a slight drop to 94.8% from 95.0% q-o-q, due to non-renewals in Singapore. But rental reversions turned positive at 1.3% from -4.5% in the previous quarter due to two renewals and two new leases signed during the quarter.
Weighted average lease expiry by gross rental income declined slightly to 3.0 years from 3.1 years.
Meanwhile, lenders to HNA Group’s CWT International seized control of assets in Singapore, China and the US after the unit failed to repay amounts due on its credit facility. The assets include Singapore-based CWT Limited, a tenant of the trust.
CWT contributes about 16.5% of CacheLog Trust’s gross rental income (GRI) and despite its situation, has not defaulted on its rental. The weighted average lease expiry of CWT’s leases is less than one year and CACHE holds about three months of rent as deposit.
See: HNA unit's lenders seize assets as payment deadline missed
In a Thursday CGS-CIMB Research report, lead analyst Lock Mun Yee says, “We understand relevant end-users take up almost all the leased area. There are plans to negotiate with end-users and prospective tenants to maintain the occupancy in light of CWT’s lease expiry. We have not assumed a default or significant non-renewals from underlying tenants in our assumptions.”
On the other hand, DBS Group Research is cognisant that about CWT’s contribution to the trust’s GRI and believes that it will remain a key concern in investor’ minds that has to be addressed over the immediate term.
In a Friday report, lead analyst Carmen Tay is keeping more conservative estimates as she believes that the higher proportion of lease renewals from the CWT Commodity Hub and Precise II properties, which have been facing higher vacancies, may put stress on near-term DPU.
“With active negotiations and remarketing efforts underway, we believe that vacancy challenges should abate as replacement tenants are secured over the medium term,” she adds.
Maybank Kim Eng seems to be more positive on the CWT situation.
In a Thursday report, analyst Chua Su Tye says, “We see limited DPU impact from CWT’s loan default, with its exposure to CWT at 16.5% of gross rental income (down from 20.6% at end-Dec 018), and WALE at less than a year, against a 3.1 year portfolio WALE. Management could look to negotiate directly with end-users on the CWT’s leased space.”
CGS-CIMB has kept its “hold” call on CacheLog Trust with a target price of 74 cents, while DBS has also maintained a “hold” on the trust with a slightly higher target price of 75 cents.
Maybank Kim Eng is however more positive with an unchanged “buy” recommendation and a target price of 88 cents.
As at 4.40pm, units in CacheLog Trust are trading at 74 cents or 1.1 times FY19 book with a dividend yield of 8.48%.
