Cheerless Quarter Lacklustre Year
- 1H15 results were in line, with DPU flattish at 4.286 cents, meeting 48.8% of our FY15 forecast.
- Reiterate NEUTRAL, with a DDM-derived SGD1.18 TP (2% upside, 8.3% CoE, 0% TG) implying an 8.9% total return upside.
- Warehouse space supply dynamics remain unfavourable as additional stocks could put pressure on rental fees/occupancy rates.
- Singapore’s Purchasing Managers’ Index (PMI) is also unexciting (June’s: 50.4 vs May’s: 50.2).
1H15 results affected by higher opex.
- Cache Logistics Trust’s (Cache) 1H15 net property income (NPI) dropped 2.4% to SGD38.2m, impacted by the conversion of three buildings (Cold Centre, Changi Districentre 1 and Changi Districentre 2) from single-tenanted master leases to multitenancies in a soft rental market.
- This led to a slight increase in vacancy and Cache assuming direct obligation for all property expenses, including land rent, property tax and leasing expenses.
- There was a SGD1.45m capital distribution from the SGD9.7m disposal of the Kim Heng Warehouse on 2 Jun.
- It booked a SGD408,000 divestment gain in 2Q15. The capital distribution boosted DPU by 0.185 cents, else 1H15 DPU would have been down by 4.3%.
- Gearing inched up to 38% from 36.6%, partly from added facilities as Cache added three new Australian assets into its portfolio for a total sum of AUD75.6m in February.
What is latest in its portfolio?
- Portfolio occupancy rates dipped to 98.3% from 99.1% as a result of the multi-tenancies conversion.
- Cache’s build-to-suit development DHL Supply Chain Advanced Regional Centre (DSC ARC) received its temporary occupation permit (TOP) in early July and fitting-out works are now underway.
- Rental income from DHL Supply Chain Singapore Pte Ltd is slated to commence in Jan 2016.
Remain negative on warehouse spaces.
- We adjust downwards our FY15-17F DPU estimates by 2.4-5.1% due to lower NPI margins and slower-than-expected rental income from DSC ARC.
- We remain cautious on the impending amount of new industrial warehouse spaces that could put pressure on industrial rents and occupancy rates.
- This could then lead to a downwards capital value of the REIT’s portfolio.
- Reiterate NEUTRAL with a lower TP of SGD1.18 (from SGD1.22).
(Ong Kian Lin, Ivan Looi)
Source: http://www.rhbgroup.com/
