SINGAPORE (Oct 29): Analysts are positive that Cache Logistics Trust can find its footing again, after stumbling in 3Q19.
Cache reported an 11% drop in its distribution per unit (DPU) to 1.313 cents during the quarter, from 1.475 cents a year ago.
This came as a result of the 12.0% dip in gross revenue to $27.7 million from $31.5 million in the same quarter the preceding year, on the back of lower revenue from Cache Gul LogisCentre as a result of the conversion from a master lease to a multi-tenancy lease structure, as well as the transitory downtime between replacement tenants in Commodity Hub.
Other contributing factors included the expiry of leases at four properties, the absence of contribution from Jinshan Chemical Warehouse which was divested in December 2018 and a weaker Australian dollar.
Consequently, net property income (NPI) for the quarter fell 8.3% to $21.1 million.
Despite the declines that were registered in several key financial metrics in 3Q19, some market watchers remain bullish on the REIT’s ability to recover from the recent stumble.
For a start, Maybank Kim Eng analyst Chua Su Tye attests that Cache’s fundamentals “remain sound”, given its 92.8% pre-committed occupancy rate in Singapore, as well as DPU figures being backed by rising Australian contributions.
“Singapore’s revenues fell 16.8% y-o-y, [and] 2.4% q-o-q, but committed occupancy picked up q-o-q from 86.1% to 92.8% as of end-September 2019,” says Chua in a Tuesday report.
Chua adds that although Singapore’s contributions have fallen further to 10.7% from 14.8% in the previous quarter, they continue to offer “firm leasing momentum”.
To be sure, Chua highlights how Cache’s management had secured some 609,000 sqft in lease commitments during the quarter, amounting to some 7% of total net leasable area (NLA).
Chua also highlights Cache could thrive on its assets in Australia, as the backdrop of growing demand is met by a tight supply. Cache’s 7.6% spike in revenue from Australia was spearheaded by its latest acquisition of Altona warehouse.
In addition, the REIT’s aggregate leverage rose from 37.9% to 38.3%, leaving it with debt headroom of about $90 million to $220 million.
“We expect interest cost savings as it refinanced A$72.6 million ($67.8 million) of debt due in 2019-20. Management will remain focused on capital recycling, eyeing freehold assets in Australia and New Zealand,” says Chua.
Analyst Chu Peng from the OCBC Investment Research team agrees, citing how Australia’s low rate environment could present Cache with windows of opportunity.
“Given the low rate environment in Australia with the Reserve Bank of Australia further cutting the cash rate by 25 bps to 0.75%, we believe that CACHE could benefit from better refinancing opportunities with lower rate,” says Chu.
However, Chu remains doubtful about Cache’s ability to deliver a quick turnabout, especially amid economic headwinds and Singapore’s competitive environment that are likely to have an adverse impact on rental for logistics spaces.
Chu notes that 3Q19 rental reversion was “weak” at -11.9%, adding that lower-than-expected rental reversions for Singapore-based assets, as well as rental defaults from CWT Pte Ltd or other large tenants pose investment risks.
Conversely, earlier-than-expected recovery in rental reversions in Cache’s Singapore portfolio could be potential catalysts, adds Chu.
Units in Cache Logistics Trust closed 0.5 cent lower, or 0.69% down, at 72 cents on Tuesday. This translates to a price-to-earnings (PE) ratio of 12.5 times, and a dividend yield of 7.89% for FY19F according to OCBC valuations.
