Cache Logistics Trust - CIMB Research 2016-10-21: 3Q16 Devaluation Loss Of S$36.1m

Cache Logistics Trust - CIMB Research 2016-10-21: 3Q16 Devaluation Loss Of S$36.1m CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust - 3Q16 Devaluation Loss Of S$36.1m

  • 9M16 DPU of 5.875 Scts (-9% yoy) was in line with our expectations but below consensus, forming 78% of our full-year forecast. We expect a poorer 4Q16.
  • Devaluation loss of S$36.1m from 51 Aps Ave. NAV/unit decreased to S$0.83/unit (FY15: S$0.88/unit). Gearing increased to 41.2% (1H16: 39.8%).
  • We believe that CACHE would look to capital recycling in the near term to pare down gearing.
  • Minimal lease expiries in FY17 but CACHE’s wall of worry would come in FY18 when 26.8% of GRI is up for renewal.
  • Reiterate Reduce on declining DPU profile. Our DDM target price is unchanged.


3Q16 results summary 

  • CACHE achieved DPU of 1.847 Scts (-14% yoy) for 3Q16, forming 25% of our FY16F. 
  • On a like-for-like basis, excluding the capital distribution from the divestment of Kim Heng Warehouse, 3Q16 DPU would have fallen by 5% yoy. 
  • Distributable income grew by 8% yoy due to incremental revenue from Australian acquisitions and DHL Supply Advanced Regional Centre, offset by lower income for 51 Alps Avenue. 
  • Under a holding agreement, CACHE would receive S$0.77 psf pm (prev. c.S$1.50) from Sep onwards.


Devaluation loss of S$36.1m from 51 Alps Ave 

  • NAV/unit decreased to S$0.83/unit (FY15: S$0.88/unit) on devaluation loss from 51 Alps Ave. 
  • Due to the ongoing legal dispute with Schenker (refer to our report “In an impasse” 27 Sep 2016), the Manager undertook an independent valuation of the property, resulting in a downward valuation of the property to S$80.7m (FY15: S$116.8m). 
  • We understand that the major change in the valuer’s assumptions was rental rates and growth rate. Otherwise, the property’s cap rate was unchanged at c.6.5%.


Gearing increased to 41.2% (1H16: 39.8%) 

  • Due to the devaluation loss, gearing increased to 41.2%. The S$80.7m valuation for 51 Alps assumed market rent (S$1.40-1.50 psf pm) for Schenker’s lease renewal of five years. 
  • In the worst case scenario where CACHE is bound to the pre-agreed rent of S$0.77 for five years, the market value of 51 Alps would be S$66.6m. 
  • In this case, gearing would increase to 41.3% and NAV would be 81.3 Scts/unit. 
  • In the near term, CACHE would look to capital recycling to pare down gearing.


Minimal lease expiries in 2017 

  • As at 9M16, committed portfolio occupancy stood at 96.5%. 
  • CACHE secured 296k sf of new leases in 3Q16, and converted Hi-Speed Logistics Centre to a multi-tenanted building (MTB). However, this implies like-for-like negative rental reversion and higher property expenses. Looking ahead, 3.9% of GRI is up for renewal in 2017. 
  • CACHE’s wall of worry would come in 2018 when 26.8% of GRI is up for renewal. Of which, c.16% relates to CWT Commodity Hub, which we believe would be converted to a MTB.


Reiterate Reduce with unchanged target price 

  • There were no new updates on the legal dispute with Schenker, though we believe that the case could drag through to end-2017. This implies that CACHE would be receiving rent of S$0.77 psf pm for 51 Alps for one full year. Coupled with higher property expenses from MTBs (i.e. Hi-Speed Logistics), this explains our 5% drop in FY17F DPU.
  • Reiterate Reduce with an unchanged DDM target price (S$0.80). 
  • Upside risk is the resolution of the case in CACHE’s favour. Our numbers incorporate the worst case scenario.




YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2016-10-21
CIMB Research SGX Stock Analyst Report REDUCE Maintain REDUCE 0.80 Same 0.800



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