CACHE LOGISTICS TRUST
K2LU.SI
Cache Logistics Trust - Attractive dividend yields
- Moving towards a multi-tenanted lease profile.
- Margins under pressure; but occupancy still resilient.
- DHL BTS to offset cost pressures.
- Proposed warehouse acquisition in Adelaide, Australia. Partially funded by private placement
- Maintain Add on attractive dividend yields.
Moving towards multi-tenanted lease profile
- Cache’s 3Q15 NPI was down 4% yoy to S$18.8m due to the conversion of several properties from master lease to multi-tenancy, which led to a slight increase in vacancy and the trust assuming direct obligation for property expenses.
- Cache derives 64% of its revenue from single-tenant master leases with fixed rental escalations, and 36% from multi-tenanted buildings. The Master Lessees (sponsors CWT and C&P) are expected to gradually wind down their exposures to c.50% of the original space taken up.
Margins under pressure; but occupancy still resilient
- Post-conversion of four master-leased properties to multi-tenanted properties, NPI margins have narrowed from 94% in 3Q14 to 81% in 3Q15. However, occupancy remained relatively high at 95.2%.
- Given continued new supply (+5.6% growth in 2016 vs. +5.2% in 2015), and the imposition of several cooling measures in the industrial market (e.g. revision in JTC subletting policy), we expect flat warehouse rents of S$2 psf.
DHL BTS to offset cost pressures
- With DHL BTS receiving T.O.P in Jul 15 (contribution expected in FY16), we expect the property to lift earnings and stabilise NPI margins. Its GFA accounts for c.15% of Cache’s entire portfolio.
- Furthermore, as DHL will only take up 77% of the total GFA from Jan 16 onwards, upside could come from leasing out the remaining space.
Proposed warehouse acquisition in Adelaide, Australia
- Expanding its reach into Adelaide, Cache has proposed the acquisition of a distribution warehouse for A$57.3m, which is expected to generate c.8.9% NPI yield in the first year (GLA of 58,795 sq m). Upon completion of the acquisition, the property will be fully master-leased to Metcash Trading, an ASX-listed company on a triple net lease structure, with an annual rental escalation pegged to the CPI.
- The acquisition would be partially funded by its recent private placement (106.3m new units at S$0.941/unit).
Attractive dividend yields underpin our Add rating
- Cache offers forward dividend yields of 9-9.7%, the highest among the industrial REITs.
- Moreover, it has one of the longest WALE (weighted average lease expiry) of 4.3 years by NLA, with the lowest tenant lease expiries of 1% in 2015.
- We shave our FY15-17 DPU by 3-13% as we incorporate the recent dilutive effects from the S$100m-rights issue, which is partially offset by the two recent acquisitions in Australia.
- That said, given the recent share price correction, we maintain Add on the stock, with a lower DDM-based target price of S$1.08.
LOCK Mun Yee
CIMB Securities
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http://research.itradecimb.com/
2015-12-09
CIMB Securities
SGX Stock
Analyst Report
1.08
Down
1.23