CACHE LOGISTICS TRUST
K2LU.SI
Cache Logistics Trust - 4Q15: In Line With Expectations
Results in line, maintain BUY.
- Results in line, maintain BUY and target of S$1.18, based on DDM (required rate of return: 7.1%, terminal growth: 1.3%).
- Cache reported 4Q15 DPU of 2.074 S cents, down 3.4% yoy.
- 4Q15 gross revenue increased 16.6% yoy to S$24m while NPI declined 1.0% yoy to S$19.2m.
- The NPI was lower primarily due to the conversion of several properties from masterlease to multi-tenancy, leading to a slight increase in vacancy and property expenses, which was offset by contribution from its Australian acquisitions.
- The results were in line with expectations, coming in at 99.5% of our estimates.
Operational highlights.
- 4Q15 saw overall occupancy rate remain stable at 94.9% (3Q15: 95.2%).
- Aggregate gearing saw an uptick of 1.5ppt qoq to reach 39.8% in the quarter (3Q15: 38.3%), while 62% of the borrowing has been hedged against interest rate risk.
- Overall financing costs inched 20bp to 3.6% (3Q15: 3.4%) mainly due to borrowings drawn for Australian acquisitions. There is no debt due until Oct 17. About 14% of borrowings are due in FY17.
- Forward renewals of leases due in 2016 saw the lease expiries drop by 4ppt to 11% by NLA with rents seeing a single-digit decline.
Management confident of stable occupancies for the master leases due for renewal in 2016.
- Cache is in negotiations for the renewal of two masterleases (Schenker and HiSpeed), accounting for 11% by NLA in 2H16. Located near Changi Airport, management expressed confidence in the attractiveness of Schenker MegaHub and Hi-Speed Logistics to logistics players.
- The underlying occupancies are near full for the properties with underlying tenants indicating continuity plans.
Looking forward to DHL built-to-suit (BTS) development contributions from 1Q16,
- ... with DHL expected to commence rental payments in Jan 16 for Block 1 (717,600 sf by NLA, or 77% of the project NLA) of the Advanced Regional Centre (ARC).
- No further leasing update for Block 2 (210,500sf by NLA, or 23% of the project NLA) although management is on active lookout for suitable tenants.
Looking to cash in on Australia…
- Australia looks particularly attractive to management notwithstanding higher taxes, primarily for its freehold land titles (JTC: 30 years), and transparent policies as opposed to China's.
- Cache's three Australian acquisitions for A$93.9m during the quarter came on the heels of the acquisition of three Australian properties earlier this year. This brings the Australian portfolio to A$164m, with over 1.4m sf of NLA (about one-fifth of Cache’s portfolio NLA).
- Australia now accounts for about 10% of portfolio value and 13% by income.
…as domestic outlook continues to look bleak.
- Management voiced concerns over the lacklustre domestic economy, noting the PMI of 49.5 last month indicates contraction in the manufacturing sector, adding that the shadow space could aggravate the oversupply situation. These, and the relatively sombre growth of domestic GDP in 4Q15, underpin the ongoing push overseas.
Cap rate compression seen in the portfolio revaluation.
- Contrary to the expectations of the interest rate hike resulting in cap rate expansion for the property portfolio, management noted that the average cap rate from Singapore declined from 6.8% (6.5%- 7% range) last year to 6.6% (6.25%-7% range).
- Similarly, the China property saw cap rate compress from 6.75% to 6.5%. Management believes high liquidity to be a contributing factor.
Vikrant Pandey
UOB Kay Hian
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Derek Chang
UOB Kay Hian
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http://research.uobkayhian.com/
2016-01-26
UOB Kay Hian
SGX Stock
Analyst Report
1.18
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1.18
