CACHE LOGISTICS TRUST
K2LU.SI
Cloudy earnings visibility
More master leases expiring in FY16
Maiden contribution to come from DSC ARC
Valuations appear fair
Leasing risks remain
- We believe the operating landscape will remain challenging for Cache Logistics Trust (CACHE) over the next 6-12 months. While management has done a commendable job by bringing the total remaining NLA for renewal in FY15 to just 2%, earnings visibility remains cloudy, in our view, as 16% of its leases (by gross rental income) is expiring in FY16.
- Of this, the bulk of it is made up by two properties acquired during IPO under master leases – Schenker Megahub and Hi-Speed Logistics Centre. The two tenants have yet to decide on whether they will be renewing their master leases upon expiry. In the event of a non-renewal, CACHE would face leasing risks, while additional costs would be incurred for the conversion of the assets into multi-tenanted buildings.
- During CACHE’s recent 2Q15 results, it recorded a sharp 8.3 ppt YoY dip in its NPI margin to 85.9% due partly to conversions of some master leases to multi-tenanted leases. We are lowering our FY15 and FY16 DPU forecasts by 5.5 and 10.0%, respectively, to account for lower revenue and NPI margin assumptions ahead.
DHL Supply Chain
- ARC contribution to provide some buffer A silver lining for CACHE would come from the maiden contribution of its built-to-suit DHL Supply Chain Advanced Regional Centre (DSC ARC) from Jan next year (TOP in Jul 2015).
- This property located at Tampines LogisPark has a NLA of 928,100 sq ft and is meant to meet DHL’s customers demand in the aerospace, healthcare and technology sectors. DHL will occupy 77% of the space initially, and CACHE is negotiating with prospective tenants to fill up the remaining space.
Lower FV and maintain HOLD
- Given our reduced DPU forecasts as highlighted earlier, we consequently lower our fair value estimate from S$1.17 to S$1.00.
- Despite CACHE offering an estimated FY15 and FY16 distribution yield of 8.3% and 9.1%, respectively, we believe the stock is fairly priced, and hence maintain HOLD on CACHE.
Wong Teck Ching Andy | http://www.ocbcresearch.com/ OCBC Securities 2015-09-04
1.00
Down
1.17
