Tenants’ market
- Revenue in line, though NPI missed on rent incentives. 1H15 DPU at 50% of our FY15F.
- Cut FY16-17 DPU from 9.3-9.4 cts to 9-9.1 due to increased property expenses.
- Accordingly, reduce DDM TP from SGD1.37 to SGD1.33 (CoE 8.5%, LTG 2%). Maintain BUY. Catalyst from DHL-BTS project in FY16 and still-attractive yields of 7.4-7.8%.
Margins hit by market incentives
- 2Q revenue was in line at SGD21.5m (+3.7% YoY), though NPI was below at SGD18.5m (-5.4% YoY) as property expenses soared to SGD3m (+150% YoY). DPU met at 2.14 cts (-0.3% YoY).
- While Cache’s lease expiries for FY15 improved from 9% to just 2%, we underestimated the extent of rent incentives given in order to maintain occupancies, which remained high at 98.3% vs 90% islandwide.
- Management shared that demand is growing very slowly, while 2015-16 warehousing supply is 213% of annual demand.
- In view of the weak market dynamics, it is focusing on maintaining passing rents and occupancies with rent incentives.
- We estimate that the incentives could be 8% of a 3-year contract.
- 1H15 revenue was 49.2% our full-year estimate, NPI only 46.9% while DPU was 50%.
Cut DPUs but maintain BUY
- In view of its cost pressures, we drop FY15 NPI margins from 94.2% to 88.4%. This shaves our NPI estimate from SGD81.4m to SGD76.4m.
- Our FY15 DPU is unchanged at 8.6cts as Cache has decided to sustain it with cash reserves.
- Despite the cost pressures, FY16-17 DPU should still improve to 9-9.1cts (previous estimates 9.3-9.4cts) from its DHL-BTS project. This should start booking revenue from Jan 16.
- Our TP dips from SGD1.37 to SGD1.33, but FY15-17 yields remain attractive at 7.4-7.8%.
(Joshua Tan)
Source: http://www.maybank-ke.com.sg
