SINGAPORE (Apr 26): Analysts are standing pat on Cache Logistics Trust, despite the REIT posting a 12.5% decline in distribution per unit (DPU) to 1.507 cents for the 1Q ended March.
“With the expected bottoming of rental rates of the [Singapore] logistic sector by 2H18, we believe Cache is also nearing the bottom of the DPU downcycle, which was caused by the imbalance in demand and supply,” says RHB Research analyst Vijay Natarajan.
“The favourable resolution of the matter involving the Schenker leases and a rights issuance have also removed the overhang surrounding its high gearing levels and rental disputes,” he adds.
RHB is keeping its “buy” recommendation on Cache with an unchanged target price of 98 cents.
Cache’s 1Q DPU decline was mainly attributable to an enlarged unit base as a result of the rights issue, as well as the absence of capital distribution during the quarter.
Excluding the capital distribution of $0.9 million paid in 1Q17, on a like-for-like basis, the income available for distribution was up 5.5% in 1Q18.
See: Cache Logistics Trust posts 12.5% drop in 1Q DPU to 1.507 cents on enlarged base, absence of capital distribution
Driven by contribution from the Australian portfolio comprising nine properties acquired in February 2018, Cache saw its 1Q18 revenue and net property income (NPI) rise by 7.3% and 10.0%, respectively.
“1Q18 results were strong, as expected, and Cache’s growth profile is improving,” says Maybank Kim Eng Research analyst Chua Su Tye. “Rising contributions from these new assets validate its overseas diversification push.”
In addition, Chua sees stronger growth visibility for Cache ahead as rents in Singapore are stabilising on the back of a pick-up in leasing.
Maybank is keeping its “buy” call on Cache with an unchanged target price of 95 cents.
For now, Phillip Capital says that the outlook is stable for Cache.
“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,” says analyst Richard Leow.
“Nonetheless, the portfolio is expected to be stable for the remainder of the year, with renewal risk limited to 6.7% of GRI (gross rental income) against a backdrop of tapering supply of new space,” he adds.
The brokerage is keeping its “accumulate” rating on Cache with an unchanged target price of 91 cents.
Conversely, OCBC Investment Research warns that Cache still has to grapple with tough times ahead.
“We expect the challenging environment within the industrial space to continue for at least the rest of the year,” says lead analyst Deborah Ong.
“Going forward, we focus more on the additional contribution from the Australian acquisition as well as the conversion of CWT Commodity Hub from master lease to a multi-tenancy lease,” she adds.
OCBC is keeping its “hold” call on Cache, with a slightly lower fair value estimate of 83 cents, down from 85 cents previously.
However, CIMB Research opines that the conversion of Commodity Hub into a multi-tenancy building would be unlikely to have much impact, from a rental rate perspective on a like-for-like basis.
“The average gross rent from the underlying leases (close to $1.40 psf per month) would yield similar income as the expired master rent (close to $1.11 psf per month),” says lead analyst Yeo Zhi Bin.
“However, there would still be some shortfall due to the building efficiency ratio (high at close to 96%) and the current close to 14% vacancy. We believe the property's occupancy could reach a stabilised state of 90% by end-FY18F, and 93% by end-FY19F,” he adds.
As such, CIMB is cutting its FY19F-20F DPU forecasts by 9.5-11%.
The brokerage is maintaining its “hold” call on Cache, and lowering its target price to 80 cents, from 88 cents previously.
As at 12.30pm, units of Cache Logistics Trust are trading half a cent down at 82.5 cents.
According to CIMB valuations, this implies an estimated price-to-earnings ratio of 16.0 times and a price-to-book ratio of 1.2 times for FY19.
