Cache Logistics Trust - Phillip Securities 2015-10-22: Conversions are a drag

Cache Logistics Trust - Phillip Securities 2015-10-22: Conversions are a drag CACHE LOGISTICS TRUST K2LU.SI 

Cache Logistics Trust - Conversions are a drag 

  • 2.140 Cents DPU, unchanged from previous year and preceding quarter. 
  • High portfolio occupancy of 95.2%, with long WALE of 4.3 years. 
  • Dividend yield of >8% remains attractive. 

What is the news? 

  • Cache Logistics Trust (Cache) announced its 3Q FY15 (Y/E Dec) results on 21 October, after trading hours. Cache will trade ex-dividend on 27 October. 

How do we view this? 

 YTD four master-leases have been converted to multi-tenanted. 

  • Effect of the conversion can be seen as property expenses have increased q-o-q since 2Q FY15, as tenancies convert from triple-net-lease to gross lease. As gross revenue increases, so does property expenses. This has the effect of lowering the NPI-margin. 
  • Divestment proceeds from Kim Heng warehouse is supporting DPU in the interim. Kim Heng warehouse was divested in June 2015 for S$9.7 million and a total distribution of S$2.96 million from the divestment has been paid out so far in 2Q FY15 and 3Q FY15. There is a balance of S$6.74 million that is available for distribution or other uses. 

 Inorganic growth from acquisition and completion of Build-to-suit (BTS) project should stabilise DPU. 

  • While we project a marginally lower DPU for FY16 compared to FY15, but the fourth Australian warehouse (Wacol), which will begin contributing in November 2015, and the BTS DHL Supply Chain Advanced Regional Centre (DSC ARC) will start contributing in January 2016. These additional properties should provide support, offsetting the divestment of the Kim Heng warehouse and uncertainties in the master lease expiries. 

Investment Actions 

  • We underestimated Gross revenue and Property expenses relating to properties rolling-off to multi-tenancies. 
  • We make adjustments to our estimates. Maintain "Accumulate" rating on Cache, with slightly lower DDM valuation of S$1.11. (Previous: S$1.16). 
  • Dividend yield of > 8% remains attractive.

Richard LeowCFTe Phillip Securities | http://www.poems.com.sg/ 2015-10-22
Phillip Securities SGX Stock Analyst Report ACCUMULATE Maintain ACCUMULATE 1.11 Down 1.16