Cache Logistics Trust - CIMB Research 2016-04-22: 1Q16 NPI margins still trending south

CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust 1Q16: NPI margins still trending south

Although 1Q16 DPU of 2.04Scts (-5% yoy) formed 25% of our FY16F, we consider the results to be a slight miss. Distributable income from operations was weaker.
Revenue growth from the Australian acquisitions and DSC ARC was eroded by lower NPI margins and finance costs.
Reduced its lease expiries in FY16 to 9.6% of NLA (end-15:11%).

Maintain Hold with a slightly lower target price. We see downside risks to earnings if Schenker and Hi-Speed are converted to MTBs.

Including S$1.6m in sales proceeds from the disposal of Kim Heng warehouse, Cache’s 1Q16 distributable income bumped up 9% yoy to S$18.3m (c.S$2.4m of proceeds left). However, we consider results to be a slight miss as distributable income from operations was eroded by lower NPI margins and finance costs.
Topline increased 33% yoy to S$27.9m due to incremental revenue from the Australian acquisitions and inaugural contributions from DHL Supply Chain Advanced Regional Centre (DSC ARC).

However, NPI rose at a slower pace of 12% yoy as higher property expenses from the conversion of single-tenanted buildings (STBs) to multi-tenanted buildings (MTBs) eroded topline growth.
NPI margins continued their quarterly sequential slide to 79.1%, while, average borrowing rate for 1Q16 increased 0.09% pts qoq to 3.69%. This, plus the increased borrowings for the Australian acquisitions and finance expenses for DSC ARC that could not be capitalised, led to a 1.1x jump in net financing costs to S$4.8m.

Portfolio occupancy fell to 94.2% at end-1Q16 (end-15: 94.9%) due to some vacancy at Coopers Plains.
Also, Cache reduced its lease expiries in FY16 to 9.6% of NLA (end-15: 11%). In 1Q16, Cache renewed 22% of the 960,000sf of space due for expiry, and secured 134,200sf of forward lease commitments for lease expiries in FY18. The 9.6% of NLA due for expiry in FY16 mainly relate to the Schenker Megahub and Hi-Speed Logistics Centre that would expire towards the end-Aug 16 and Oct 16 respectively.

Rental income from DHL commenced in Jan 16. DHL currently takes up 100% of block 1; while block 2 is available to Cache to lease out to other parties until DHL takes 50% of block 2 in 2018 and the whole of block 2 in 2020. At this juncture, a small pocket of the interim space (c.39,000sf of the 210,000sf) is leased to another tenant.

We decrease our FY16-18F DPU by 1-3% as we factor in lower NPI margins and higher finance costs, leading to a slightly lower DDM-based target price (S$0.94).
We see downside risks for our earnings from lower rental reversions for Schenker and Hi-Speed, or if the two properties are converted to MTBs.

YEO Zhi Bin CIMB Securities | LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2016-04-22

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.94 Down 0.95