Cache Logistics Trust - UOB Kay Hian 2017-01-24: Industrial REITs ~ Results For Cache (Below)

Cache Logistics Trust - UOB Kay Hian 2017-01-24: Industrial REITs ~ Results For Cache (Below) CACHE LOGISTICS TRUST K2LU.SI

Industrial REITs - Results For MLT (In Line) And Cache (Below)

  • Cache Logistics Trust (Cache)’s results came in below expectations on lower capital gains payout and higher interest expenses. 
  • Maintain BUY on Cache with a target price of S$0.95 (previously S$0.99). 
  • Maintain OVERWEIGHT.



WHAT’S NEW

  • Mapletree Logistics Trust (MLT) and Cache Logistics Trust (Cache) reported their quarterly results.


ACTION 


Results below expectations, maintain BUY with a reduced target price of S$0.95 (previously S$0.99), based on DDM (required rate of return: 6.9%, terminal growth: 0.9%). 

  • Cache reported 4Q16 DPU of 1.85 S cents, down 10.8% yoy. Excluding capital gains paid out last year, 4Q16 core DPU declined 3.9% yoy. 4Q16 gross revenue increased 13.5% yoy to S$27.3m, from the Australian acquisitions and DHL Centre (96% occupied), while higher property expenses from recent multi-tenancy conversions resulted in slower pace of increase for 4Q16 NPI (up 11.3% yoy to S$21.3m).
  • The results came in a tad below our and consensus expectations, with FY16 DPU of 7.725 S cents representing 97% of 2016 estimates. This was due to lower-than-expected divestment gains paid out and higher-than-expected interest expenses. 
  • We reduce our FY17-18 DPU estimates by 4%, lowering expected divestment gains and increasing borrowing costs from entering into fixed swaps.

Higher gearing from valuation losses. 

  • As alluded to in our recent strategy piece, Cache registered revaluation losses in 4Q16, as its Singapore portfolio (declines across the board) saw lower rents and shorter land tenures. Pandan Logistics Hub (-17.5%), HiSpeed Logistics Centre (-13.4%), along with Schenker Megahub (31% loss already booked in the previous quarter), were the main contributors to the fall in valuation.
  • Gearing thus hit 43.1% in 4Q16 (3Q16: 41.2%). Management is likely to divest lower yielding assets to pare down debt and manage its gearing level.

DHL ARC to provide degree of stability

  • DHL ARC to provide degree of stability, with the asset now 96% occupied (anchor tenant DHL’s occupancy at 83%, other 13% on interim leases) with DHL on a long rental lease of about 10 years, thus providing clear earnings visibility. 
  • DHL already occupies Block 1 and also took up a quarter of Block 2 last year, fast-forwarding its initial plans to take up half of Block 2 in 4Q17, before occupying the other half in 4Q19.

Timeline for dispute resolution on Schenker Megahub remains uncertain. 

  • Under the holding rental arrangement in place, Cache currently receives rental income of S$0.77 psf (under protest) as opposed to market rents of about S$1.40-1.50 psf pm.
  • Legal proceedings are still underway to claim double the amount of the rent payable under the master lease agreement (MLA) or damages arising from Schenker remaining on the property, since C&P failed to deliver vacant possession of the property. The dispute is mainly on disagreement on the rental levels. 
  • Management highlighted that Schenker has full intention to stay in the property, and will draw from the capex invested, client requirements and consolidated operations.

Acquisitions likely limited in the interim. 

  • Cache’s relatively high gearing would impede yield-accretive acquisitions particularly in target market Australia, especially as cap rates continue to compress. However management still favours Australia, primarily for its freehold land titles (JTC: 30 years), and relatively transparent policies.




Derek Chang UOB Kay Hian | Vikrant Pandey UOB Kay Hian | http://research.uobkayhian.com/ 2017-01-24
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.200 Same 1.200
BUY Maintain BUY 0.950 Down 0.990



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