Are Cache Logistics Trust’s payouts set to improve?

Singapore two-dollar bills

Cache Logistics Trust reported first-quarter distributions below some estimates, but at least one analyst expects a recovery ahead.

RHB said the distribution per unit (DPU) for the quarter was slightly below its estimate, but it pointed to the REIT’s Australian acquisitions, where full contributions will begin from the second quarter.

“With the expected bottoming of rental rates of the Singapore logistic sector by the second half of 2018, we believe Cache is also nearing the bottom of the DPU downcycle, which was caused by the imbalance in demand and supply,” RHB analyst Vijay Natarajan said in the note last week.

While RHB forecast DPU would slip by 2 percent this year on ongoing lease transitions and as logistics rents remained pressured, it expected it to rise by 4 percent in coming years.

 

The Singapore-based REIT, which invests in Asia-based income-producing real estate used for logistics had been diversifying its assets, with Australia accounting for 28 percent of its portfolio, compared with zero exposure back in 2015, the note said.

RHB maintained its Buy rating on Cache, with a target price of S$0.98 per share, saying it offered an “attractive” expected full-year yield of 7.8 percent, compared with the Singapore REIT sector average of 6 percent.

But not all outlooks were as rosy.

CGS-CIMB took an opposing view on Cache, noting that first-quarter DPU was slightly below its expectations and that it was forecasting limited DPU growth in the next two years.

It cut its 2019-20 DPU forecasts by 9.5-11 percent, mainly on the conversion of the Commodity Hub property from a master lease to a multi-tenanted building and the slight miss in first-quarter results.

The Singapore-based REIT had announced in April that one of its key assets, CWT Commodity Hub, would be converted into a multi-tenanted building. The conversion led to a fall in total portfolio occupancy to 92.8 percent, compared with 96.6 percent the end of 2017.

Management has guided that Commodity Hub’s conversion should have a “flattish” impact on rental rates, but there would likely still be some shortfall as the building’s vacancy rate was around 14 percent, said CGS-CIMB. It kept a Hold call on Cache, and cut its target price to S$0.80 from S$0.88.

Cache Logistics Trust closed at S$0.83 on Friday, up 1.21 percent.